Indirect tax


The tax that the government imposes on a taxpayer in exchange for goods and services is known as an indirect tax. In contrast to direct taxes, indirect taxes can be transferred from one person to another because they are not assessed against the taxpayer’s income, revenue, or profit.

Types of Indirect Taxes

In India, there are various forms of indirect taxes. Here are a few well-known instances of indirect taxes with brief explanations:

1. Service Tax

The recipient of a company’s services must pay service tax, which is then collected by and deposited with the central government on behalf of the government.

2.  Valuation Added Tax

Value added tax, or VAT, is assessed on the sale of moveable commodities or products that are sold directly to consumers. The individual state governments impose VAT on within-state transactions.

3.  Excise Taxes

Excise duty is imposed on commodities produced or manufactured in India and is paid by the companies that make the various products. Excise tax is frequently recouped from customers.

4.  Custom Duty

The commodities that are imported into India from foreign nations are subject to customs duty. It is occasionally charged on items being shipped out of India as well.

5.  Entertainment Tax

The respective state governments impose an entertainment tax on all financial transactions involving entertainment, including those involving movies, amusement parks, video games, arcades, and sporting events.

6.  Stamp Duty

The State Government imposes stamp duty, which is assessed on the transfer of immovable property situated within the State and is subject to a range of rates. Additionally, it applies to all legal documents.

7.  Financial Transaction Tax

When securities are traded through the Indian Stock Exchange, a securities transaction tax is charged.

Characteristics of Indirect Tax

There are numerous distinct indirect taxes in India that are levied on a variety of items, imports, manufactured goods, and services. There are certain distinctive traits of indirect tax.

These are listed below:

  1. Commodities Charges

On tangible items like commodities and services, indirect taxes are levied. These are not assessed based on your income.

2.  Transfers the Tax Burden

Indirect taxes must be paid to the government by product vendors. However, they shift the responsibility on their customers.

3.  Tax Avoidance

The pricing of the goods already includes indirect taxes. Therefore, you always pay your fair portion of the tax when you purchase products or services. Thus, it may aid in lowering tax avoidance.

4.  Consumer-Payment

The vendors transfer their customers’ indirect tax responsibility to the buyers. Thus, this tax is collected from buyers at the point of sale.

5.  Government revenue

Since this kind of tax is difficult to cheat and is applicable to the majority of goods, it is a significant source of income for the government. It contributes more than direct tax does.

6.  Consumer Not Affected Directly

Because it is levied directly against income, direct tax evasion is mostly caused by this. Since they are not directly impacted, indirect taxes do not have this issue.

Characteristics of Indirect Tax

Tax liability: The buyer is now responsible for paying the government’s indirect taxes instead of the service provider or seller.

Paying taxes:Indirect taxes are paid by the seller to the government and passed on to the buyer.

Nature: Although indirect taxes were initially regressive, they are now largely progressive as a result of the Goods and Services Tax.

Saving and investing: Since indirect taxes incentivize consumer saving and investing, they are often growth-oriented.

Evasion: Since indirect taxes are now implemented directly through goods and services, it is impossible to do so.

Who can make a payment?

For items imported or exported outside of India, an importer or exporter must pay customs duty. On products made in India, an excise duty is charged. Most commodities were included in its scope as of June 30, 2017. Later, GST was implemented, and it replaced excise duty. However, several products, including tobacco, aviation turbine fuel, natural gas, high-speed diesel, and petroleum crude, continue to be subject to excise legislation.

The tax on the supply of goods or services that must be paid by people or businesses who have a turnover greater than the established threshold is known as the Goods and Services Tax (GST).