Decoding Budget Terms: What Is Direct Tax? Definition, Types, And More - Check Here

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New Delhi: As the nation anticipates Finance Minister Nirmala Sitharaman's presentation of Budget 2024 on February 1, many individuals look forward to decoding financial terms introduced during the annual budget speech. One such term that often raises questions is 'direct tax.' Read on to find out what it is with meanings and definitions.

What Is Direct Tax?

Direct tax is a straightforward concept -- it is a tax paid directly by individuals or organizations to the government based on their earnings. In simpler terms, if you've earned money, you'll have to pay this tax.

Now one question that may be hitting you is what types of taxes will fall under the Direct Tax category. Beyond the familiar income tax, direct tax encompasses several other taxes, including gift tax, wealth tax, and capital gains tax. Whether it's an individual earning or a company making profits, direct taxes are applicable.

Categories Of Direct Tax:

Income Tax:

Income tax is levied on wages or income produced. The government has defined tax slabs to determine the amount of tax individuals must pay based on their earnings.

Capital Gains Tax:

This form of direct tax is paid on the income earned from selling assets or investments.

Corporate Tax:

Companies, both domestic and foreign, are subject to corporate tax. Revenue generated through various means, such as selling assets or providing services, falls under this category.

Wealth Tax:

Levied on property ownership and market value, wealth tax applies to those who own real estate, regardless of whether the property generates income.

Estate Tax:

Also known as inheritance tax, the estate tax is paid based on the value of the estate left behind after an individual's demise.