Direct tax is levied and paid for by individuals, Hindu undivided Families (HUF), firms, companies etc. whereas indirect tax is ultimately paid for by the end-consumer of goods and services.
The burden of tax cannot be shifted in case of direct taxes while burden can be shifted for indirect taxes.
Allocation of resources is one of the important objectives of government budget. ... Government can influence allocation of resources through: (i) Tax concessions or subsidies: To encourage investment, government can give tax concession, subsidies etc. to the producers.
Lack of administration in collection of direct taxes can make tax evasion possible, while indirect taxes cannot be evaded as the taxes are charged on goods and services.
Direct taxes help in reducing inequalities and are considered to be progressive while indirect taxes enhance inequalities and are considered to be regressive.
