by Indirect taxes are the taxes that are collected by the government from the consumers who buy goods and services. These taxes are indirect in nature as they are not directly levied on the income of the taxpayer but are levied on goods and services purchased by them. India has a well-established indirect tax system which is governed by the Goods and Services Tax (GST) regime.
Concept of Indirect Tax:
Indirect taxes are taxes that are imposed on goods and services. These taxes are generally passed on to the final consumer of the product or service. The government levies these taxes to raise revenue for various social and economic programs. The main objective of indirect taxes is to distribute the burden of taxation across a larger population.
In India, indirect taxes are levied by the Central Government and State Governments. The Central Government levies taxes on goods and services under the Central Goods and Services Tax (CGST) Act, 2017. The State Governments levy taxes on goods and services under the State Goods and Services Tax (SGST) Act, 2017.
Types of Indirect Tax in India:
There are various types of indirect taxes in India. These taxes can be broadly classified into the following categories:
Goods and Services Tax (GST)
Goods and Services Tax (GST) is a comprehensive indirect tax that was introduced in India on July 1, 2017. GST is a destination-based tax that is levied on the value-added at each stage of the supply chain. GST has replaced multiple indirect taxes such as Central Excise Duty, Service Tax, Value Added Tax (VAT), and other state-level taxes.
GST is a dual tax system where both the Central Government and State Governments have the power to levy and collect taxes. The Central Government levies Central Goods and Services Tax (CGST) on the supply of goods and services. The State Governments levy State Goods and Services Tax (SGST) on the supply of goods and services within the state. In case of inter-state supply of goods and services, the Central Government levies Integrated Goods and Services Tax (IGST).
Customs Duty
Customs Duty is a type of indirect tax that is levied on goods that are imported into India. The tax is levied on the value of the imported goods as determined by the customs authorities. The rate of customs duty varies depending on the nature of the goods and the country of origin.
Customs Duty is governed by the Customs Act, 1962. The Central Board of Indirect Taxes and Customs (CBIC) is responsible for the administration of Customs Duty in India.
Excise Duty
Excise Duty is a type of indirect tax that is levied on the manufacture of goods within the country. The tax is levied on the production or manufacture of goods and is generally included in the price of the product. The rate of excise duty varies depending on the nature of the goods.
Excise Duty is governed by the Central Excise Act, 1944. The Central Board of Indirect Taxes and Customs (CBIC) is responsible for the administration of Excise Duty in India.
Service Tax
Service Tax is a type of indirect tax that is levied on services provided within the country. The tax is levied on the value of the services provided and is generally included in the price of the service. The rate of service tax varies depending on the nature of the service.
Service Tax is governed by the Finance Act, 1994. The Central Board of Indirect Taxes and Customs (CBIC) is responsible for the administration of Service Tax in India.
Value Added Tax (VAT)
Value Added Tax (VAT) is a type of indirect tax that is levied by the State Governments on the sale of goods within the state. The tax is levied on the value added at each stage of the supply chain. The rate of VAT varies depending on the nature of the goods.
VAT was replaced by GST in 2017. However, some states still levy VAT on certain goods such as petroleum products.
Central Sales Tax (CST)
Central Sales Tax (CST) is a type of indirect tax that is levied by the Central Government on the sale of goods between different states. The tax is levied on the value of the goods and is generally included in the price of the product. The rate of CST varies depending on the nature of the goods.
CST was replaced by IGST under the GST regime in 2017.
Entertainment Tax
Entertainment Tax is a type of indirect tax that is levied by the State Governments on entertainment events such as movies, amusement parks, and sporting events. The tax is levied on the ticket price of the event. The rate of entertainment tax varies depending on the nature of the event.
Entertainment Tax was replaced by GST in 2017.
An example table that includes all indirect taxes applicable to a manufacturing company like XYZ Ltd.:
| Tax Type | Applicable to | Tax Amount | Tax Rate | Total Tax Paid |
| Customs Duty | Imported raw materials | ₹ 20,000 | 10% | ₹ 2,000 |
| Excise Duty | Manufactured goods | ₹ 60,000 | 12.5% | ₹ 7,500 |
| Service Tax | Logistic service provider | ₹ 5,000 | 18% | ₹ 900 |
| VAT | Sale of goods within state | ₹ 1,50,000 | 12.5% | ₹ 18,750 |
| CST | Sale of goods to another state | ₹ 50,000 | 2% | ₹ 1,000 |
| Entertainment Tax | Entry tickets to the company showroom | ₹ 2,000 | 10% | ₹ 200 |
| Total Tax Paid | ₹ 30,350 |
In this example, XYZ Ltd. imports raw materials from other countries and pays Customs Duty on the value of the imported goods. The company also manufactures furniture and pays Excise Duty on the value of the goods produced.
When the company transports its goods to customers within the country, it hires a logistic service provider and pays Service Tax on the value of the service provided.
When the company sells its goods within the state, it collects VAT from its customers and pays it to the State Government. Similarly, when the company sells its goods to another state, it pays CST to the Central Government.
Finally, if the company has a showroom that charges entry tickets, it collects Entertainment Tax from its customers and pays it to the State Government.
All of these indirect taxes add up to the total tax paid by the company, which is ₹30,350 in this example.
One thought on “Concept and Types of Indirect Tax”