Economics: Indirect Taxes In India

Indirect tax is a type of tax collected by the government from an intermediary such as manufacturer or retailer. The eventual burden of the tax falls on to consumers who buy goods and services from the intermediary. Some of indirect taxes are:

Sales Tax:

Sales tax charged on the sales of movable goods. Sales can be broadly classified in three categories. (a) Inter-State Sale (b) Sale during import/export (c) Intra-State (i.e. within the State) sale. State Government can impose sales tax only on sale within the State.

Service Tax:

Tax paid on services like  telephone, tour operator, architect, interior decorator, advertising, beauty parlour, health centre, banking and financial service, event management, maintenance service, consultancy service is termed as service tax.

Current rate of interest on service tax is 15%. This tax is passed on to us by service provider.

Value Added Tax:

  • Value-added taxation in India was introduced as an indirect value added tax (VAT) into the Indian taxation system from 1 April 2005
  • VAT is levied on both the producer and consumer while a sales tax is levied on only the end consumer.
  • VAT is applied at the various stages of production while sales tax is applied on the total value of the purchase.
  • Maharashtra was the first state to implement VAT in India.
  • VAT is decided by State government
  • It can be range from one to 25 per cent.

Custom duty:

Custom Duty is a type of indirect tax charged on goods imported into India. It varied from 0 to 150 % in India.

Excise Duty:

An excise or excise duty is a type of tax charged on goods produced within the country. Basic excise duty in India is 12.5 %.

GST(Goods and services tax):

  • GST will facilitate a uniform tax levied on goods and services across the country. Currently so many indirect taxes are imposed on one item in India like sales tax, Vat , excise duty on production of goods. GST will replace all the indirect taxes and levied only at the destination end, mean at the time of final delivery of goods or services.
  • Both states and centre have the power to legislate on GST.