Indirect tax

What is indirect tax?

Indirect taxes are taxes imposed by governments on goods and services to indirectly collect money from the public. They are simultaneous charges imposed on sellers, producers, and consumers at different stages of production or distribution. Indirect taxes are usually included in the price consumers have to pay for goods and services, generally in the form of value-added tax, sales taxes, excise duties, customs duty, and other fees.

Types of Indirect Tax

In India, there are five major types of indirect taxes levied on goods and services. These include excise tax, VAT (Value Added Tax), service tax, Goods and Services Tax (GST), and Customs Duty.

Excise Duty

Excise Duty is an indirect tax imposed on the production and sale of certain goods within India. It is mainly imposed on specific manufactured goods like alcohol, tobacco, petroleum products, luxury cars, etc. This tax is collected by the central government at the production stage itself.

VAT

VAT (Value Added Tax) is another type of indirect taxation in India. It is imposed on most goods and services when they are sold or exchanged for any consideration within India's borders. It is calculated as a percentage of the total value of the goods or service sold.

Service Tax

Service Tax is an indirect tax levied on services provided or agreed to be provided in India by individuals or companies not covered under GST. It includes services such as restaurant meals, professional fees, renting of immovable property services, etc.

GST

Goods and Services Tax (GST) is an umbrella term used for consumption-based taxes levied on goods and services consumed in India with effect from 1 July 2017. The GST rate varies according to whether it applies to goods or services with different rates applicable for each category e.g 05%, 12%, 18% & 28%, etc., depending upon their classification into HSN Code SLABs. GST Council decides upon these rates from time to time based on its periodic reviews.

Custom Duty

Customs Duty refers to duties imposed by Indian governments on imports and exports of certain goods worldwide into/from Indian territory.

Difference between direct and indirect tax

Direct taxes are taxes that are paid directly to the government by those liable for them, such as income tax or corporate tax. These are collected from individuals and businesses based on assessed income or profits while in contrast, indirect taxes are imposed on goods or services and are paid by the consumer to the supplier; the supplier then forwards these funds to the public.

Indirect taxes, such as those levied on goods and services, benefit from wider collection circles and therefore create fewer problems with delinquency or evasion of taxes.