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What is Indirect Tax in India and what are its Types?

What is Indirect Tax and what are its Types?

Indirect Tax and it’s types explained


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Sep 27 2021

By : Bajaj Allianz Life

India has a robust mechanism of taxes that helps the government to fund many developmental projects in the country. These taxes can broadly be categorized as direct and indirect tax. Now, what is indirect tax? If that’s what you’re wondering, let’s take a closer look at the details of indirect tax in India.

 

What is indirect tax?

 

Indirect tax is tax imposed on an individual or entity, which is ultimately paid by another person. That’s why it is termed as ‘indirect’ tax. Indirect tax is levied on supply of goods and services, unlike direct tax which is levied on the income or profits earned by companies, partnership firms, and individuals etc. The framework of indirect tax in India has constantly been strengthened over the years, culminating so far with the introduction and implementation of Goods and Services Tax (GST) regime since July 2017.

 

Various types of indirect taxes in India

 

In India, there are different types of indirect taxes levied by the government. Let’s take a brief look at the most common ones.

 

1. Customs Duty

 

Customs duty is a kind of tax that is imposed on the goods that are transported internationally, across borders. It is defined and governed by the provisions of the Customs Act, 1962. This Act allows the government to impose customs duty on exports and imports, and also to prohibit export and import of goods on need basis. The Central Board of Indirect Taxes & Customs (CBIC) is in charge of all things related to customs duty.

 

2. Central Excise Duty

 

Central excise duty is a kind of indirect tax that is levied on the manufacture of goods in India. Unlike customs duty, which applies to goods crossing international borders, excise duty is an indirect tax that is levied only on domestically manufactured specified goods.

 

3. Goods and Services Tax (GST)

 

GST is an indirect tax levied on the supply of goods and services in India. This is recent tax structure on the block. GST has subsumed erstwhile indirect taxes in the country such as VAT, Service tax, Central Excise duty, Additional duties of Customs, Luxury tax, Entry Tax etc. It is paid by the end user of the goods or services, but it is remitted to the government by the seller of goods or the provider of services.

 

4. Securities Transaction Tax (STT)

 

STT is an indirect tax that the Government of India levies on the purchase and sale of securities listed on stock exchanges in India. The securities that are subject to STT include equity, derivatives, and equity-oriented mutual funds.

 

Indirect Tax vs. Income Tax

 

Beginners may often confuse indirect tax with income tax. Indirect tax, as you’ve seen above, is a transaction tax levied on the manufacture, supply and import/export of goods and services. Income tax, on the other hand, is a kind of direct tax that is levied on the income earned. It is defined and governed by the Income Tax Act, 1961.

Each financial year, one needs to calculate total income and compute taxes thereon, so that same can be remitted within the prescribed timelines. If you’re not sure about how to do this, you can use an income tax calculator.

 

How to use income tax calculator online

 

Here’s a step-by-step guide to using an Income Tax Calculator online.

  • Enter your basic details, like age, gender, etc.
  • Fill in the details of your income, like the gross annual income, etc.
  • Enter the details of any investments and eligible deductions you can claim. This includes investments u/s 80C, home loans, education loans, savings account interest etc.
  • Submit the details to see the amount of tax you will be liable for.

 

Conclusion

 

This is how it sums up the few of the important details about indirect taxes. You’ve also been introduced to how they’re different from income tax. That would help you to understand personal finance and manage your funds accordingly.

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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.