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Types of Taxes in India: Direct Tax and Indirect Tax

By Ektha Surana


Updated on: Jan 22nd, 2024


8 min read

Tax is an obligatory expense enforced on an individual by the state and central government. It is one of the government’s most significant sources of income that helps them build a country’s economy and infrastructure. 

Therefore as a responsible citizen, you must pay taxes. However, it is also crucial to know the different types of taxes in India implemented in the taxation system of India.

Here’s all about the types of taxes.

How many types of taxes are there in India?

The tax structure in India is a three-tier structure: local municipal bodies, state, and central government. Typically taxation in India is broadly classified into direct tax and indirect tax. Let us look at these two types of taxes and catch the difference between direct and indirect taxes.

Direct taxes

Direct tax is levied on the income or profits of people. For example, a taxpayer pays the government for different purposes, including income tax, personal property tax, FBT, etc. The burden has to be borne by the person on whom the tax is levied and cannot be passed on to someone else. Direct tax is governed and administered by the Central Board of Direct Taxes (CBDT).

Indirect taxes

Conversely, indirect tax is levied by the government on goods and services. Therefore, it can be shifted from one tax-paying individual to another. E.g. The wholesaler can pass it on to retailers, who then pass it on to customers. Therefore, customers bear the brunt of indirect taxes. Indirect taxes are governed and administered by the Central Board of Indirect Taxes and Customs (CBIC).


Direct Taxes

Indirect Taxes

Other Taxes

Income TaxSales TaxProperty Tax
Corporate TaxService TaxRegistration Fees
Securities Transaction TaxCoctroi DutyToll Tax
Capital Gains TaxCustom DutyEducation Cess
 Gift Tax Value Added Tax (VAT)Entertainment Tax
 Wealth Tax Goods & Services Tax (GST)Professional Tax

Difference between Direct and Indirect tax

Direct TaxIndirect tax
Tax on income or wealthTax on goods or services
Progressive in natureRegressive in nature 
The tax burden cannot be shifted, i.e., the person who pays the tax to the Government cannot recover it from somebody else.The tax burden can be shifted, i.e. the person paying the tax passes on the incidence to another person.

Major types of Indirect taxes and Direct taxes in India

Here is the list of major types of Indirect taxes:

  • Goods and Service Tax– It is one of the existing indirect taxes imposed on various goods and services. One significant benefit of GST is that it eliminates the tax-on-tax or cascading effect of the previous tax regime.
  • Excise duty – It is a tax imposed on licensing, sale or production of certain goods produced within the country.
  • Sales Tax - Sales tax is a type of indirect tax in which the seller charges a buyer at the time of selling or exchanging a taxable good. Then the seller repays the tax to the government on behalf of that buyer.  However, the sales tax generally relies upon the authority in power and the policies implemented by the authority. Some major sales tax types are manufacturer’s sales tax, wholesale sales tax, use tax, value-added tax, and retai sales tax.

Here is the list of major types of Direct taxes:

  • Income tax – It is a type of tax that is imposed on the profits and income earned during the year. Income tax is the most common example of direct tax. As the term “income tax” suggests, it is a tax levied by the Central government on income generated by individuals and businesses in a particular financial year. However, the amount payable for your income tax depends on how much money you earn under different heads of income. Additionally, for the financial year of 2022-2023, income tax is applicable to those with an annual income exceeding Rs 2.5 lakh p.a.

In addition, other examples of direct and indirect tax include corporate tax, value-added tax, customs duty, and many more.

types of taxes in india


Now that you know about some of the common types of direct and indirect taxes, it is important to know the pros and cons of direct and Indirect taxes.

Advantages and disadvantages of direct tax


  1. Individuals with lower incomes pay lower taxes than people with higher incomes. Therefore, it is known to be impartial and progressive in nature.
  2. It curbs inflation and reduces inequalities.


  1. There are many fraudulent practices through which taxpayers often pay lower tax or avoid taxes.
  2. The documentation process is sometimes complex and time-consuming, thereby creating inconvenience. Therefore, it is often considered a burden.

Advantages and disadvantages of indirect tax


  1. It ensures that every individual, including the poor, contributes toward nation-building.
  2. This payment is more convenient as such taxes are already included in the price when purchasing any product or service.


  1. It can result in an increase in the overall price of goods and services.
  2. Consumers often lack civic consciousness of the tax they are paying.
  3. The rich and the poor pay the same tax. Therefore, it known to be regressive in nature.

Now that you are aware of the different types of taxes in India, you will have a better idea of the types of taxes you are paying.

Frequently Asked Questions

What type of tax was Kharaj?

It was an individual Islamic tax on agricultural land, typically paid by non-Muslims under Islamic law. This tax is a new term that you might hear. It is because, in the 7th and 8th centuries, Alauddin Khilji imposed a 50% kharaj tax on the northern parts of India. In addition, Kharaj was a type of land tax, and its range was one-third to half of the produce.

Which type of tax is custom duty?

Customs duty is a type of indirect tax. It applies to some of the goods that are exported out of the country and to all imported goods. The main objective of imposing this tax is to ensure every product entering India is taxed. The tax imposed on imported products is called import tax. Duties levied on exported items are termed export duty.

Under the Customs Act 1962, customs duty in India consists of the following types: Protective duty, essential custom duty, anti-dumping duty, education cess, and many more.

Corporation tax is which type of tax?

Corporate Tax or Corporation Tax is a direct tax. Corporate tax is levied on the profits made by a company from their business, whether foreign or domestic. The corporate tax rates vary from 15% to 40%.

Gift tax is direct or indirect tax?

Gift tax is levied under the Income Tax Act. Therefore, it is a direct tax. Gifts are taxable at normal slab rates if the value of gifts exceeds Rs. 50,000.

What type of tax is property tax?

Property tax is the tax paid by a property owner to the municipal corporation. Since it is a non-transferable tax and has to be paid by the property owner, it is a direct tax.

About the Author

Multitasking between pouring myself coffees and poring over the ever-changing tax laws. Here, I've authored 100+ blogs on income tax and simplified complex income tax topics like the intimidating crypto tax rules, old vs new tax regime debate, changes in debt funds taxation, budget analysis and more. Some combinations I like- tax and content, finance & startups, technology & psychology, fitness & neuroscience. Read more


Quick Summary

Tax is significant for a country's economy; India has direct and indirect taxes. Direct taxes are on income or profits, while indirect taxes are on goods and services. India's tax structure involves local, state, and central governments. Major types include Income Tax and Sales Tax. Taxes can be advantageously progressive or regressive, ensuring varied contributions for nation-building.

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