Q. With reference to types of taxes, consider the following statements:
1.Direct taxes have both incidence and impact on the same person.
2.Indirect taxes are characterized by a separation between the person on whom the tax is imposed and the one who ultimately bears the burden.
Which of the statements given above is/are correct?
Answer: C
Notes:
Explanation:
- In direct taxes, the person who is legally liable to pay the tax (incidence) is also the one who actually bears the financial burden (impact). Example: Income Tax — imposed on the earner, and they themselves pay it.
- In indirect taxes, the tax is levied on one party (like producers or sellers), but the cost is passed on to another party (usually consumers). Example: GST or Sales Tax — imposed on the seller, but paid by the consumer in the final price.
Source- TMH Indian Economy by Ramesh Singh
