Direct Taxation

Business, Legal & Accounting Glossary

Definition: Direct Taxation




Full Definition of Direct Taxation


Direct taxation is one point tax imposed by the government on income earned, wealth accumulated or gift received. Incidence of direct tax cannot be transferred and is borne by the recipient directly.

Income earned can be by an individual or an organization. Direct tax rates may vary from one state to another, and also from country to country. Personal income tax is the most prevalent form of direct tax and a substantial revenue earner for state governments. Income tax rates are usually designed in progressive rates, i.e. higher income leads to the higher income tax rate.

Income tax is also levied on earnings of a company. This once again is one-point taxation, and the burden is entirely borne by the company concerned.

Wealth tax and gift tax are other forms of direct taxes which are imposed on recipients of assets or gifts. Alike income tax, the liability of wealth or gift tax lies entirely on the recipient.

Characteristics Of Direct Taxes

Direct taxes are singular point taxes whose incidence lies with income earner or assert holder. Direct taxes are easily collectable as because they are deducted at source for most salaried individuals. Professionals deposit their taxes at definite intervals at government-assigned banks or treasury counters. This procedure of collection is applicable to corporate income taxes also. Direct taxes being single point are easily discernible and conveniently collectable.

One major disadvantage of direct tax is its evasiveness. Income tax is a single point of taxation, the possibility of avoidance is common. Income manipulation by professionals and corporations are also commonplace to reduce or avoid income tax.

Incidence Of Direct Taxes

Incidence of direct taxes is felt by the taxpayer only since it cannot be shared or transferred to another individual or entity. Direct taxes have a considerable impact on savings. Lower-income tax encourages savings by individuals and investments by private corporations. Direct taxes also have a significant impact on consumption behaviour or total expenditure of consumers. A lower direct tax motivates consumers to spend more. Direct tax is a tool of equitable distribution of disposable income.


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Definition Sources


Definitions for Direct Taxation are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 26th March, 2020 | 1 Views.