Indirect tax is a tax that can be accepted on to another individual or unit. Indirect tax is usually levied on suppliers or manufacturers who pass it on to the final consumer. Excise duty, Custom duty, and Value-Added Tax (VAT) are some of the examples of Indirect taxes.
Indirect Tax in India
Here are numerous Indirect taxes applied by the government of India. Taxes are imposed on production, sale, import and even purchases of goods and services. These laws aren’t also well-defined Acts from the government, moderately orders, circulars and notifications are specified out by relevant government bodies to this end. As such, it can be bulky trying to understand every feature of Indirect taxes in India.
Indirect taxes are pushed to be streamlined following the introduction of the uniform Goods and Services Tax (GST). The facts below will help you understand more about the types of Indirect taxes and where they are applicable from a consumer’s perception.
Different Types of Indirect Tax
There are different types of Indirect taxes in India. However, after the implementation of GST, all these Indirect taxes were hustled into one particular tax for the citizens of India. We will have a aspect at the different types of Indirect tax in India:
- Service tax:
This tax is levied by an entity in return for the service providing by them. This service tax is collected by the Government of India and deposited with them.
- Excise duty:
When any product or good is mass-produced by a company or factory in India, then the tax levied on those products are called the Excise Duty. The industrial companies pays the tax on the goods and in turn to recover the amount from their customers.
- Value Added Tax:
This tax is also known as VAT, this type of tax is levied on any product retailed directly to buyer and are movable. VAT comprises of Central Sales Tax which is paid to the Government of India State Central Sales Tax which is paid to the respective State Government.
- Custom Duty:
This tax is levied on the goods imported to India. Sometimes, Custom Duty is also levied on goods which are exported out of India.
- Stamp Duty:
Stamp duty is levied on the transfer of any immovable property in state of India. The state government in whose state the property is located controls this type of tax. Stamp duty is also applicable on all legal documents too.
- Entertainment Tax:
This kind of tax is charged by the state government and is valid on any product or transactions related to entertainment. For example purchasing of any video games, movie shows, sports activities, arcades, amusement parks, etc. are some of the things on which Entertainment Tax is charged.
- Securities Transaction Tax:
Securities Transaction tax is levied during the trading of securities through Indian Stock Exchange.
Features of Indirect Tax
Some of the significant features of Indirect taxes:
- Tax liability: The service benefactor or seller pays Indirect taxes to the government, and the liability is transferred to the customer.
- Payment of tax: The vendor pays Indirect taxes to the government and the similar is transferred to the end user.
- Nature: Indirect taxes were originally reverting in nature, but Thanks to the implementation of the Goods and Services Tax, they are now attractively progressive.
- Saving and investment: Indirect taxes are generally growth-oriented since the fact that they encourage customers to save and invest.
- Elusion: It is difficult to avoid Indirect taxes because they are now applied directly through products and services.
Advantages of Indirect Tax
Below mentioned are the foremost advantages of Indirect taxes
- Convenience: Indirect taxes don’t burden the taxpayer and are convenient as they are paid only at the time of doing a purchase. Furthermore, state authorities find it expedient to charge Indirect taxes because they are collected directly at the stores/factories which helps in saving a lot of time and effort.
- Ease of collection: Indirect taxes are easy to accumulate in comparison with direct taxes. Since Indirect taxes are only collected at the time of purchases, the authorities need not concern about their collection.
- Collection from the poor: Those who earn less than Rs. 2.5 lakh p.a. are exempt from Income Tax, which means that they do not contribute to the government. Subsequently Indirect taxes are charged at the point of sale, all individuals, irrespective of the income tax slab under which they fall, contribute towards the growth of the economy.
- Equitable contributions: Indirect taxes are straight related to the cost of products and services. This is essentially means that the basic necessities appeal lower rates of tax while luxury items are charged at higher tax rates, thus ensuring that the contributions are unbiassed.
Why GST is Indirect Tax?
The Goods and Services Tax, or GST As it is usually known, was implemented on July 1st, 2017 to incorporate the various Indirect taxes in the country. The taxes that were once compulsory are now done away with due to the introduction of the new tax rule. One of the key benefits of GST is that it has eradicated the cascading effect of tax, thereby ensuring that they do not end up paying for every value addition.
The taxes listed under GST on the state level include service tax, state excise duty, countervailing duty, additional excise duty, and special additional custom duties. The taxes included under GST at the central level include sales tax, central sales tax, purchase tax, entertainment tax, luxury tax, octroi and entry tax, and taxes on betting and lottery gambling.
FAQs on Indirect Tax
- If I purchase a ticket for a cricket match, will I have to pay any Indirect tax?
Yes, you will be charged Entertainment Tax on purchasing a ticket for a cricket match. Though, it will be integrated under GST.
- I am traveling to India and buy some food items to consume. Will I be charged any custom duty?
No, you will not be charged custom duty on food items if they are proposed to be consume for personal use. Custom Duty will not be charged on food items worth up to Rs.12,000.
- Does a producer of goods require to obtain a license from the Central Excise department for payment of Central Excise duty?
No, you need not any license to pay your Excise Duty. A simple registration with the Central Excise department will be sufficient.
- What is the duty-free allowance for someone of Indian Origin (British passport holder flying to India form the UK) returning to India for a short holiday?
The duty-free allowance for a individual of Indian Origin (British Passport Holder) is up to Rs.12,000.
- Is Indirect tax subject to change?
Yes, Indirect tax is subject to change. It depends on the economy and numerous other factors based on which the Government of India can choose to rise or cut the tax rates.