Direct and Indirect Taxes

 

direct tax, indirect tax

"What is meant by Direct Tax?" I got this question during one of interviews 6,7 years back. I went blank for a minute. It was so obvious, yet I didn’t know the answer.

 

I am an indirect tax consultant. This is basic stuff. I should know these things.

 

The question before this one was "What is Indirect Tax?".


Indirect Tax is the tax we pay on pretty much anything we buy. They have fancy names such as Sales tax, value added tax (VAT), or goods and services tax (GST).

Usually, a merchant collects these taxes while we make a purchase and submits them to the government on our behalf. The maximum retail price tag (MRP) would be inclusive of this kind of tax.

Here the vendor later files a tax return and submits the tax proceeds to the government. The tax burden is shifted from the consumer to the vendor.

We are paying tax indirectly. Hence the name "Indirect Tax".

 

Now the baffling question "In that case what is meant by Direct Tax?"

 

I knew it would be the opposite of it, but not how. That interview didn’t last much longer. The first thing I did after the interview was to look it up.

 

We pay a few taxes to the government directly. If you are salaried, income tax. If you own land, land tax. If you have a house, tax for that.

Here the tax is imposed on us. And we are paying for it as well.

Ultimate tax burden falls on the person on whom it is imposed. And it cannot be shifted.

 

One more thing is the compulsiveness of the direct taxes.


Indirect taxes like value added tax (VAT), or goods and services tax (GST) are imposed only when a taxable transaction occurs. Here people have the freedom to transact or not to do so. Hence, it's not compulsory tax. 

While the direct taxes don’t have this feature. They are imposed on a person's ownership or existence or earnings. Hence pay your direct taxes :)

 

#tax #indirecttaxation #erpimplementation #taxengine #interview

Comments

Post a Comment

Popular posts from this blog

Difference between Manual and Quick Payment

Functionally: Manual Payment:  These are manual check payments. Payments processed by writing a cheque manually, issued to the Supplier and later updated in the system. you can select invoices having Payment Method as Electronic Quick Payment:  Quick payment are computer generated payments. Cheques will be printed from the system. for quick payments even though a check is voided we can reissue the same check since it is a computer generated payment. interest invoices are generated only for quick payment Technically : With Manual Payment option, you can apply the payment on any invoice and on any Site of the Supplier.  Manual Payments can be recorded against invoice with supplier site having a 'Hold All Payments' checked whcih is not possible in case of Quick Payments Where as in Quick Payment, system picks up the Supplier Name and Address based on the invoice you selected to pay and you are not allowed to alter the site details.
Read more

Distribution Sets

Image
Distribution sets are used to have the invoice distributions entered automatically. It can have information like charge account, tax code.. etc which will flow to invoice distributions and later they can be adjusted if required.  Distribution sets can be selected while keying in an invoice. They can be defaulted from supplier site as well. Creating Distribution Sets     To create a Full Distribution Set: 1. In the Distribution Sets window, enter the Name and Description of the Distribution Set you are creating. 2. Enter the Account and Description for each distribution and enter the Percentage of the invoice amount that you want to distribute to the Account. You can enter positive and negative percentages. Create as many distributions as you need. The sum of the distribution percentages must equal 100 or 0. 3. Save your work. Payables automatically assigns type Full to your Distribution Set.     To create a Skeleton Distribution Set: 1. ...
Read more

Prepayment: Difference between Temporary and Permanent Prepayments

A prepayment is a type of invoice you enter to pay an advance payment for to a supplier or employee. For example, you may need to pay a deposit on a lease, or you may need to pay an employee an advance for travel expenses. You can later apply the prepayment to one or more invoices or expense reports you receive from the supplier or employee to offset the amount paid to them. You can enter either a Temporary or a Permanent type prepayment.   Temporary prepayments can be applied to invoices or expense reports you receive. For example, you use a Temporary prepayment to pay a hotel a catering deposit. When the hotel's invoice arrives, apply the prepayment to the invoice to reduce the amount you pay.  Permanent prepayments cannot be applied to invoices. For example, you use a Permanent prepayment to pay a lease deposit for which you do not expect to be invoiced. If you want to apply a prepayment to one or more invoices or expense reports, you must firs...
Read more

Glad you came here

It is part of my attempts to write about tax topics in general. Scribbling notes on topics I work on. Crossed 12K hits. Glad to know it's helping others as well. I seek your feedback. Raise your opinion. Share with people who can benefit from it. Contribute in the comments section, on social media, over a cup of coffee, or however you prefer. This will help me and the community tremendously.