Indirect tax in india

Indirect Tax in India

An indirect tax is levied on goods & services, imports, & sales instead of income. In other words, this type of tax burden passes to another entity (goods or services), but not to the same entity. For instance, a manufacturer pays tax to the government, which then passes this burden to the end-user of his goods or services. It’s unlike a direct tax, which is directly levied on the income of an individual. In India, the Central Government seeks indirect taxes, like GST whereas the state government levies VAT. 

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Types of Indirect Tax

However, a number of indirect taxes are summed up but still, many are payable to central and state tax authorities. Here are a few key taxes:

• Goods and Services Tax (GST)

GST stands for goods and services tax, which is applicable to them. The central government introduced it to levy a single rate of tax for a particular good or service all over India.

• Customs duty

Customs duty is imposed on imported goods as per directives defined under the Customs Act, 1962, and also the purview of CBEC. Unlike Excise Duty, it is concerned with internationally manufactured goods.

• Stamp duty

Stamp duty is a type of indirect tax that is payable on the transfer of any immovable asset like property in the state of India. It varies from circle to circle (where the immovable property is being sold or bought).

Indirect Taxes Subsumed Under GST

The taxation system has been revolutionized by the introduction of GST in India. Also called “one tax” for many indirect taxes, it covers the following under GST.

• Service tax

As its name suggests, this tax was payable on services. Earlier, it was imposed on all goods/services equally. But at present, it is passed on to the end-user of the services. The central government levies it through the Central Board of Excise & Customs (CBEC). Currently, it covers only such goods that are excluded from the GST regime, such as alcohol, petrol, and diesel.  

• Excise duty

It is applicable to manufactured, licenced, or sold goods or products in India. The manufacturer pays it for goods being domestically manufactured. The launch of GST has shrunk its applicability to a limited number of goods, such as alcohol.  

• VAT (Value Added Tax)

It refers to Value-Added Tax, which is levied on products that are directly sold to end-users or consumers. The Central Sales Tax is payable to the government of India. On the flip side, the respective state governments receive State Central Sales Tax. Largely, this tax is discontinued in India after the launch of GST. But, the goods like alcohol are still put in the category of this indirect tax.

Due Dates for Advance Indirect Tax Payment in India

Self-employed and professional services-providing entities have to pay the minimum percentage of advance tax liabilities. Any failure in payment before the due date can impose penalties. 

The following points define the percentage of liability and the due dates for this payment in India:

• • At least 30 percent of the tax liability by the 15th of September of a financial year
  • At least 60 percent of the tax liability by the 15th of December of a financial year
  • 100 percent of the tax liability by the 15th of March of a financial year

Benefits of Indirect Tax

Discover the Advantages of These Taxes

These taxes come up with some key benefits to taxpayers and the government. Let’s find out what these benefits are:

• • Convenience for Initial Taxpayers

Being transferrable in nature, indirect taxes do not burden the initial taxpayer. Its burden shifts to a different entity or end-user at a later date. So, it’s the consumer who actually pays the tax. For the state government, it’s convenient to collect it directly from the manufacturer and save a lot of time and effort.

• • Easy to Collect

These taxes are easy to collect because it comes from the buyer at the time he/she purchases goods. So, it’s effortless for the competent authorities to collect it without any hassles. 

• • Wider Taxpayer Base

Income tax is not levied on those who have less than INR 2.5 Lakh income per annum in India. And Section 87A allows up to INR 12,500 tax rebates for those who earn less than INR 5 Lakhs. It means that they are exempt from tax contributions to the government. However, this tax is levied on consumption. But, every individual in a certain way (irrespective of the income slab) pays taxes and contributes to our country’s economic growth.

• • Balanced Contribution

Indirect taxes are concerned with the cost of services and products. It means that those who consume less pay a lower amount of tax. Likewise, high earner pays a higher rate of indirect tax. In the nutshell, the contribution from all is balanced.    

Key Features

Main features of Indirect Taxes

• Liability Shifts

The liability starts from the seller or the service provider and passes to the customer ultimately. The government receives it at the first stage.

• Progressive Taxes

Indirect taxes appear regressive in nature in the first stage, which later converts into progressive. It’s all because of the goods and services tax. 

• Growth-Oriented Taxes

These taxes push individuals to invest wisely and save money, which eventually contributes to the growth of the economy.

• Not Able to Evade

The taxpayer cannot escape from paying it. These are directly levied through the transport or sale of products or when the service is provided.

Connect with CAAQ consulting unit if you face any challenges in understanding and paying indirect taxes.