EconomicsICSE Class 10 · Public Finance

Taxes: Direct Tax, Indirect Tax, GST and Types of Tax Rates (ICSE Class 10 Economics)

Updated 17 October 2026 · Fact-checked

A tax is a compulsory payment to the government without any direct return. A direct tax (income tax) is paid by the person on whom it is imposed; an indirect tax (GST, customs duty) is imposed on one person and shifted to another through the price. GST is a comprehensive, multi-stage indirect tax on goods and services meant to remove cascading and create one national market. Tax rates may be progressive, proportional, regressive or degressive.

Understand Taxes: Direct, Indirect, GST and Tax Types

Public finance deals with the income and expenditure of governments. Tax revenue is its main source.

Direct tax. Impact and incidence fall on the same person; it cannot be shifted. Examples: income tax, corporation tax, property tax.

Merits: equity (progressive rates), certainty, low collection cost, elasticity, civic consciousness, reduces inequality.
Demerits: inconvenient, can be evaded, narrow base, high rates may discourage saving and work.

Indirect tax. Imposed on one person (seller) and shifted to another (buyer). Examples: GST, customs duty.

Merits: convenient, wide coverage, difficult to evade, can discourage harmful goods, protects domestic industry.
Demerits: regressive, uncertain revenue, inflationary, no civic consciousness.

Differences.

Basis	Direct	Indirect
Impact and incidence	Same person	Different persons
Shifting	Not possible	Possible
Nature	Progressive	Regressive
Levied on	Income and property	Goods and services
Evasion	Easier	Difficult
Convenience	Lump sum, less convenient	Small amounts in price

GST. The Goods and Services Tax was introduced in India on 1 July 2017. It is a comprehensive, multi-stage, destination-based tax on the supply of goods and services replacing many earlier indirect taxes. Objectives: remove tax on tax (cascading) through input tax credit; one national market; simpler system; wider base and better compliance; less evasion.

Types of tax by rate (meaning only).

Progressive: rate rises as income rises.
Proportional: same rate for all incomes.
Regressive: rate falls as income rises.
Degressive: the rate rises with income up to a limit, beyond which a uniform rate applies; the rate rises less than proportionately.

Taxes: Direct, Indirect, GST and Tax Types: key facts

Tax (meaning): Compulsory payment
To government
No direct return
Direct versus indirect: Direct: same person bears and pays | Indirect: shifted to buyer
Tax types by rate: Progressive rate up with income
Proportional same rate
Regressive rate down with income
Degressive rises slowly
Tax amount: Tax = Income (or price) × Rate ÷ 100
GST on a price: Total price = Price + Price × GST rate ÷ 100

Progressive	rate up with income
Proportional	same rate
Regressive	rate down with income
Degressive	rises slowly

How to answer Taxes: Direct, Indirect, GST and Tax Types questions

Structure the answer as definition, example, merits, demerits. For sums, apply the rate to the base.

1Define the tax and state who bears the burden.
2Give examples (income tax; GST).
3List merits and demerits in separate numbered lists.
4For differences, draw a table with four to six bases.
5For sums, tax = base × rate ÷ 100; total price with GST = price + tax.

Taxes: Direct, Indirect, GST and Tax Types in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Buying a pair of shoes

Suppose a shop sells a pair of shoes at ₹1,000 before tax and GST at an assumed rate of 18% applies.

What does the customer pay, and who is the taxpayer in effect?

Try it first, then show the solutionSolution

GST = 1,000 × 18 ÷ 100 = ₹180.
Customer pays 1,000 + 180 = ₹1,180.
The shop collects GST and pays it to the government, but the burden is shifted to the buyer: an indirect tax.

Answer: The customer pays ₹1,180; ₹180 is GST, an indirect tax borne by the buyer.

Memory hook: Seller collects; buyer bears.

Tricks to remember Taxes: Direct, Indirect, GST and Tax Types

Short memory aids. Say each one aloud once, then use it on a question the same day.

Direct = Do it yourself
Same person pays and bears.
Use it when: Direct tax.
PPRD
Progressive, Proportional, Regressive, Degressive.
Use it when: Types of rates.
One nation, one tax
GST replaced many indirect taxes.
Use it when: GST objective.

Taxes: Direct, Indirect, GST and Tax Types: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Example of direct tax · 1 mark · MCQBoard level

Which of the following is a direct tax?
(a) GST
(b) Customs duty
(c) Income tax
(d) Excise duty

Try it first, then show the solutionSolution

Income tax falls on the earner and cannot be shifted.

Answer: (c)

Example 2: Two differences · 2 marks · Short answerBoard level

State two differences between direct and indirect taxes. (2 marks)

Try it first, then show the solutionSolution

Direct: impact and incidence on the same person; indirect: on different persons.
Direct tax is progressive; indirect tax is regressive.

Answer: As above.

Example 3: Tax types sum · 4 marks · Short answerHarder board level

Three persons earn ₹20,000, ₹40,000 and ₹80,000. Find the tax paid by each under (a) a progressive tax at 5%, 10% and 15% respectively; (b) a proportional tax at 10%; (c) a regressive tax at 12%, 10% and 8% respectively. (4 marks)

Try it first, then show the solutionSolution

Progressive: 1,000; 4,000; 12,000.
Proportional: 2,000; 4,000; 8,000.
Regressive: 2,400; 4,000; 6,400.
Check: 20,000 × 5% = 1,000; 40,000 × 10% = 4,000; 80,000 × 15% = 12,000; 20,000 × 12% = 2,400; 80,000 × 8% = 6,400.

Answer: Progressive 1,000/4,000/12,000; proportional 2,000/4,000/8,000; regressive 2,400/4,000/6,400.

Example 4: GST objectives · 4 marks · Long answerHarder board level

Explain any four objectives of GST. (4 marks)

Try it first, then show the solutionSolution

To remove the cascading effect (tax on tax) through input tax credit.
To create a single national market.
To simplify the tax structure, replacing many taxes.
To widen the tax base and reduce evasion through online compliance.

Answer: As listed.

Example 5: Which is regressive · 3 marks · Short answerHOTS / competency

A bag of rice costs ₹100 and carries ₹5 of indirect tax. A rich family earning ₹1,00,000 a month and a poor family earning ₹10,000 a month each buy 10 bags. Find the tax paid by each family as a percentage of income and say which way the burden falls. (3 marks)

Try it first, then show the solutionSolution

Tax per family = 10 × 5 = ₹50.
Rich: 50 ÷ 1,00,000 × 100 = 0.05%; poor: 50 ÷ 10,000 × 100 = 0.5%.
The poor family bears ten times the burden relative to income: indirect taxes tend to be regressive.

Answer: 0.05% and 0.5%; the burden is heavier on the poor.

Where students lose marks in Taxes: Direct, Indirect, GST and Tax Types

The slips examiners see most often, and what to write instead.

Mistake: Saying GST is a direct tax
Name confusion.
Wrong working
GST is paid by the seller so it is direct.
Right working
GST is an indirect tax: burden shifted to the buyer.
Do this: Ask: can it be shifted?
Usually costs: 1 mark.
Mistake: Mixing regressive and degressive
Similar names.
Wrong working
Degressive = falling rate.
Right working
Regressive = falling rate; degressive = rate rises up to a limit, then uniform.
Do this: Learn meanings.
Usually costs: 1 mark.
Mistake: Tax on wrong base
Rate applied to total including GST.
Wrong working
12% of 560.
Right working
12% of 500 (pre-tax).
Do this: Apply to pre-tax price.
Usually costs: 1 mark.

Exam tips

Types of tax by rate: meaning only, one line each.
Use a table for direct versus indirect.
Give GST introduction year only if asked; objectives are the main point.

Practice questions on Taxes: Direct, Indirect, GST and Tax Types

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
A tax whose rate rises as income rises is called:
(a) regressive
(b) proportional
(c) progressive
(d) degressive
Hint
Slab rates.
Answer
(c)
Q2 · 3 marks · Short answerBoard level
Define a tax. State two merits of a direct tax. (3 marks)
Hint
Compulsory payment.
Answer
A tax is a compulsory payment to the government without a direct return. Merits of a direct tax: equity and certainty.
Q3 · 3 marks · Short answerHarder board level
Explain any three demerits of indirect taxes. (3 marks)
Hint
Regressive, uncertain, inflationary.
Answer
They are regressive, revenue is uncertain as it depends on spending, and they raise prices (inflationary).
Q4 · 3 marks · Short answerHarder board level
A shopkeeper sells a mobile phone case for ₹500 plus GST at an assumed 12%. Find the GST and the price paid by the customer. If the case is sold for ₹590 including GST, find the pre-tax price at 18% GST. (3 marks)
Hint
Rate on pre-tax price.
Answer
GST = 500 × 12 ÷ 100 = ₹60; price paid = ₹560. For 18%: pre-tax price × 1.18 = 590, so pre-tax price = 590 ÷ 1.18 = ₹500.
Q5 · 3 marks · Short answerHOTS / competency
Suppose the government wants to reduce income inequality without discouraging work too much. Which tax type should it prefer for income and why? Name one risk. (3 marks)
Hint
Progressive and its risk.
Answer
A progressive tax takes a higher percentage from higher incomes and lowers inequality. Risk: very high rates may discourage work, saving or encourage evasion.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Example of direct tax?Show answer
Income tax.
2.Example of indirect tax?Show answer
GST or customs duty.
3.GST introduced in?Show answer
1 July 2017.
4.Rate rises with income?Show answer
Progressive.
5.Rate falls with income?Show answer
Regressive.

Taxes: Direct, Indirect, GST and Tax Types: frequently asked questions

What is the difference between direct and indirect tax?

Direct tax is paid by the person on whom it is imposed; indirect tax is shifted to the buyer through price.

What are the objectives of GST?

To remove cascading, create a single market, simplify taxes, widen the base and reduce evasion.

What are progressive and regressive taxes?

Progressive tax rate rises with income; regressive falls with income.