Question

Which of the following is a direct tax?

• A. GST
• B. Customs Duty
• C. Income Tax
• D. Excise Duty

Hint:

Direct tax burden cannot be shifted to others.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Taxes are financial charges imposed by a government on citizens or businesses. They are classified into two main categories:
1. Direct Tax: These are taxes levied directly on the income or wealth of a person or a company. The "Impact" (legal responsibility to pay) and the "Incidence" (actual financial burden) fall on the same person. These taxes cannot be shifted to others.
2. Indirect Tax: These are taxes levied on goods and services. The "Impact" is on the producer/seller, but the "Incidence" is shifted to the final consumer.
Step 2: Detailed Explanation:
Analyzing the provided options:
- (A) GST (Goods and Services Tax): An indirect tax that replaced many central and state taxes. It is paid by the consumer but remitted by the seller.
- (B) Customs Duty: An indirect tax levied on goods imported into or exported out of the country.
- (C) Income Tax: A direct tax levied on the annual earnings of individuals and businesses. The person earning the income must pay the tax to the government and cannot pass this burden to someone else.
- (D) Excise Duty: An indirect tax levied on the manufacture of goods within the country.
Step 3: Final Answer:
Income Tax is a direct tax because the burden remains with the individual/entity upon whom it is levied.