Budget 2024: All you need to know about direct and indirect taxes

Finance Minister Nirmala Sitharaman in the Union Budget for 2023-24 pegged the Gross Tax Revenue at about Rs 33.61 lakh crore with an implied tax-GDP ratio of 11.1 percent

Taxes are the major source of revenue for a government that helps shape the economy and infrastructure. Indian tax structure comprises two main components - Direct Taxes and Indirect Taxes.

Finance Minister Nirmala Sitharaman will present the Interim Budget on February 1 as this is an election year. The full Budget for the financial year 2024-25 is expected to be presented by the new government in July after the Lok Sabha elections.

All eyes will be on the Finance Minister on the announcements on taxation in the Union Budget 2024.

Ahead of the Budget presentation let’s take a look at various components of direct taxes and indirect taxes.

Direct Taxes

Direct taxes are levied on the income or profit of a person. These taxes are directly paid by an individual to the government without any intermediaries. The tax burden is borne by the individual as per the total earnings in a financial year. Such taxes have been described as progressive as these are levied based on the income level of an individual.

Common examples of direct taxes are income tax, property tax, corporate tax, wealth tax, gift tax, security transaction tax and capital gains tax.

Indirect Taxes

Taxes that are levied on the consumption of goods and services are called indirect taxes. Such taxes are not paid by an individual to the government directly.

A person who is providing services or selling goods collects taxes from its customers or clients and then passes these on to the government. These taxes can be shifted from one taxpayer to another. For example, a company can shift the Goods and Service Tax to a wholesaler who can shift again to a retailer. However, consumers have to pay these taxes ultimately.

Common examples of indirect taxes are Goods and Services Tax, Customs Tax, Excise Tax and Value Added Tax. Such taxes have been termed as regressive as rich and poor pay the same tax irrespective of the difference in their income levels.

The government in the Union Annual Budget provide details about estimated receipts under direct and indirect taxes, non-tax revenue and capital receipts. The trends in receipts and expenditure along with deficit indicators give a picture of the health of the economy.

Direct and Indirect tax estimates for 2023-24

Finance Minister Nirmala Sitharaman in the Union Budget for 2023-24 pegged the Gross Tax Revenue at about Rs 33.61 lakh crore with an implied tax-GDP ratio of 11.1 percent.

The indirect tax collection was estimated at Rs 15.37 lakh crore in the Budget Estimate of FY24. Direct taxes comprising Corporation tax and Income Tax were estimated at Rs 18.24 lakh crore for FY 2023-24.

Total receipts from direct taxes in the first half of FY 2023-24 were Rs 9.17 lakh crore reflecting a rise of 25.2 percent Rs 7.32 lakh crore in the H1 of FY2022-23.

The indirect tax collection in the first half of FY 2023-24 was Rs 7.03 lakh crore, showing an increase of 6.5 percent over Rs 6.60 lakh crore in H1 of FY 2022-23.

Total Indirect Tax collections stood at Rs 13.82 lakh crore in FY2022-23 against Rs 12.89 lakh crore in FY2021-22. Direct Tax collection, net of refunds, stood at Rs 13.73 lakh crore, up by 16.78 percent in the year-ago period.