Union Budget: Revenues from taxes and other sources are the government’s main source of revenue. There are two types of taxes that the government levies on its citizens which include direct and indirect tax.
Income tax, real estate tax, personal property tax, and taxes on assets are all examples of direct taxes. Whereas the GST, customs duty, and tax deducted at source (TDS) are examples of indirect tax methods.
Non-tax revenue, on the other hand, is the steady income that the government gets from sources other than taxes. Interest, dividends, and profits from public sector businesses make up the majority of this category’s earnings.
The Income Tax Board obliges individuals or legal entities to pay taxes according to their income. So, when a person or organisation pays tax directly to that entity, it is called direct tax. Direct tax cannot be paid on behalf of anyone, ie. the obligation to pay the tax cannot be transferred to someone else. For example, income tax, real estate tax, corporate income tax, inheritance tax and gift tax.
Taxes paid for the goods and services are called indirect taxes. In indirect taxes, the liability to pay the tax and the person who ultimately pays it to the government are different. Indirect taxes are for example Goods and Services Tax (GST), Value Added Tax (VAT), Sales Tax, etc.
In 2016–17, personal income tax and corporate tax accounted for 51.3% of total revenues, while indirect taxes accounted for the remaining portion. The percentage was 56.4% in 2020-21, with corporate tax at 28.1% and personal income tax at 28.3%.
GST took over more than a dozen state levies and completely overhauled the indirect taxes (with the exception of customs duties) after the new indirect tax regime was implemented in 2017. This was the primary source of indirect tax collection for the Centre. The GST Council, not the government, now decides the tax rates.