Financial Planning

Savings and Investment

Everyone must have heard the word 'tax' in newspapers, news channels or in people's conversation.
What exactly is tax and why do we pay it? Why do the government collects taxes from us?

Tax is actually the amount of money charged by the government from the common people and other various entities to meet the expenditure required for public welfare such as street lightning, street cleaning, water supply and building of roads. It is also charged on products, incomes and other activities.

There are two types of taxes. They are:
(1) Direct tax
(2) Indirect tax

Let us try to understand these types of taxes.

(1) Direct tax:
The tax which is paid directly to the government by an individual or by an entity upon whom the tax is imposed is called direct tax. Direct taxes include property tax, income tax, water tax, professional tax, taxes on assets, etc.
The burden of direct taxes cannot be shifted to another individual or entity. Only the individual or the entity upon whom the tax is imposed is responsible for the payment of tax.

(2) Indirect tax:
The tax which is not paid directly to the government is called indirect tax. It actually increases the price of a commodity, so the consumer pays the tax indirectly to the government by paying more for the commodity. Indirect taxes can be shifted to other individuals, so it is not necessary…