Indirect Tax

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What is indirect tax?

Manufacturers pay indirect taxes to their country’s government. Ultimately, the end consumer is responsible for paying taxes, as they are buying the products. Materialistic commodities are taxed, as opposed to direct taxes.

The Indian government levies many indirect taxes. There are taxes on the manufacture, sale, importation, and even the acquisition of goods and services, among other things. But they’re more like instructions and circulars than actual laws. As a result, determining the exact nature of indirect taxes in India can be difficult.

To make indirect taxes more efficient, the Goods and Services Tax was introduced (GST). Please read on to learn more about indirect taxes and where they apply from a consumer’s standpoint.

Indirect Tax

Indirect Taxes of Different Kinds

In India, there are several types of indirect taxes. However, for Indian citizens, these indirect taxes were combined into one single tax after the GST was implemented. As a result, there are several types of indirect taxation in India.

This tax is levied in exchange for the service the entity provides, and it is collected and paid by the Government of India. When a company in India manufactures a product or good, the excise duty is levied on it. The manufacturing company pays the excise duty on the goods and, in turn, recovers the amount from their customers.

  • Value Added Tax (VAT): Also known as VAT, this type of tax is applied to any product sold directly to the customer and which is movable. VAT consists of Central Sales Tax, which is paid to the Government of India, and State Central Sales Tax, which is paid to the respective State Government.
  • Custom Duty: This tax is levied on goods imported to India, although Custom Duty may be levied on products exported from India.
  • Stamp Duty: This is a tax on the transfer of all immovable property in a state of India, payable to the state government in which the property is located. Stamp duty is also applicable on all legal documents.
  • Entertainment Tax: This tax is levied by the state and is applied on all products or transactions involving entertainment. Entertainment Tax is levied on video games, movie shows, sports activities, arcades, amusement parks, etc. This tax is levied on securities traded on the Indian Stock Exchange.

Characteristics of Indirect Tax

Indirect taxes have some essential characteristics:

  • Tax obligations: Services or sellers pay indirect taxes to the government, and the burden is passed to the customer due to this payment arrangement.
  • Sales tax: The sales tax is paid to the government by the seller and is later passed on to the consumer.
  • Convenience: Indirect taxes are relatively low in cost and are paid only when making a purchase; state authorities also find it convenient to collect indirect taxes because they are collected directly at the stores or factories, which saves them a great deal of time and effort.
  • Easy collection: Indirect taxes are easier to collect than direct taxes because indirect taxes are only collected when making purchases, so the authorities need not be concerned about their collection.
  • Income tax exemption: For those earning less than Rs.2.5 lakh per annum, which means they do not contribute to the government. Since indirect taxes are charged at the point of sale, all individuals, regardless of the income tax bracket under which they fall, contribute to the economy’s growth. This means that the necessities pay less tax, while the luxurious items are taxed at higher rates, ensuring that contributions are equally distributed.

Disadvantages of Indirect Tax

The following are some of the drawbacks of indirect taxation:

  • Indirect Taxes can be charged cumulatively. The effect is that intermediaries involved in a point-based transaction system are likely to levy their own service tax, leading to an increase in the price of the goods.
  • Indirect taxes can have a regressive effect on the economy. For example, poor and rich people pay the same amount of salt tax, but if the wealthier person defaults, the penalty will be harsher.
  • Indirect Taxes aren’t conducive to the industry. Raw materials and goods are taxed, which increases the cost of production, preventing industries from expanding as they formerly did.

FAQs About Indirect Taxes

Is Indirect tax subject to change?

Direct taxes, on the other hand, aren’t as flexible as they used to be. As a result, the government of India can decide to raise or lower tax rates based on the economy and other variables.

Will I have to pay indirect tax if I buy a ticket to a cricket match?

Purchasing tickets to a cricket match will incur Entertainment Tax. But it will be covered by the GST.

I’m going to India, and I’m bringing some cuisine with me. Will I have to pay customs duties?

As long as the food is intended for personal consumption, you won’t have to pay customs duty—food costing up to Rs. 12,000 would not be subject to customs duty.