Indirect Taxes

Indirect taxes are applied widely on goods and services. Service Tax, Central Excise Duty, Customs Duty, Goods & Services Tax (GST), State Sales Tax, Central Sales Tax (CST) and Value Added Tax (VAT) are the forms of the indirect taxes in India.

The persons liable to pay such taxes to the government exchequer has the liberty to collect it from his customers and hence the name ‘Indirect Taxes’. This tax is primarily levied and collected from the seller/supplier of goods or the provider of services, who in most circumstances passes it on to the end consumer, who bears the ultimate burden of this form of tax. Even though the ultimate burden of Indirect Taxes are borne by the end consumers of the goods or services, the liability of such taxes is on the seller/supplier of goods or provider of services alone.

Some of the forms of Indirect Taxes are described below:

Goods & Services Tax (GST)

This levy and collection of tax by Central Government and State Government/Union Territory are on both intra-State as well as inter-state supply of goods or services. Even the import of goods and services also attract this Tax. The taxable event in supply of goods or services. The types of GST levied are Central Goods & Services Tax (CGST) and State/Union Territory Goods & Services Tax (SGST/UTGST) on intra-State or intra-Union Territory supply of goods or services. Integrated Goods & Services Tax (IGST) on inter-State supply of goods or services and import of goods and services.

This multi-stage and destination-based taxation system has largely substituted many other indirect taxes in India, including Central Excise duty, VAT, CST and Service Tax with effect from 1st July 2017.

Service Tax

This form of tax was levied by the Union Government on provision of services till 30th June 2017 under the Finance Act, 1994. At its inception, this form of tax was levied only on those services which were defined in the Finance Act 1994. From 1st July 2012 onwards this tax was levied on all services other than those listed in the Negative List of Services. On roll out of GST from 1st July 2017, Service Tax was subsumed therein.

Central Excise Duty

This duty was levied by the Union Government on commodities manufactured or produced within the country, as against the State Excise duties which are levied on alcoholic drinks, opium, etc. Commodities liable to Central Excise duties were listed in the Schedule to the Central Excise Tariff Act, 1985. This tax was levied under the authority of Entry 84 of the Union List of the Seventh Schedule of the Indian Constitution. On roll out of GST from 1st July 2017, Service Tax was subsumed therein.

Customs Duty

This duty is levied by the Union Government on import of goods into and export of goods from India. The levy of Customs duty is regulated under the Customs Act 1962 and Customs Tariff Act 1975 and related Customs Rules, Notifications, Circulars, etc. Customs department also collects Integrated Goods & Services Tax (IGST) on import of goods and services into India. The Customs Laws also provide for levy of Anti-Dumping Duty, Safeguard Duty, Countervailing Duty, Transitional Product Specific Safeguard Duty etc.

Direct Taxes

A direct tax is a tax imposed upon a person or property as distinct from a tax imposed upon a transaction, which is described as an indirect tax. There is a distinction between direct and indirect tax depending on whether the tax payer is the actual taxpayer bearing the burden of the tax also or if the amount of tax is collected from a third party, usually a client who this bears its incidence.

The person who pays the amount of direct tax does not recover all or part of the tax from another person. It is the notion of fiscal incidence which allows to analyse who ultimately, weights the burden of a tax, that determines whether the tax is direct or indirect.

Form of direct Taxes is described below:

Income Tax

Income tax in India is governed by Entry 82 of the Union List of the Seventh Schedule to the Constitution of India, empowering the central government to tax non-agricultural income. Income-tax law consists of the Income Tax Act 1961, Income Tax Rules 1962, Notifications and Circulars issued by the Central Board of Direct Taxes (CBDT), annual Finance Acts, and judicial pronouncements by the Supreme and High Courts.

The government taxes certain income of individuals, Hindu Undivided Families (HUF's), Companies, Firms, LLPs, Associations, bodies, local authorities and any other juridical person. The CBDT administers the Income Tax Department, which is part of the Ministry of Finance's Department of Revenue. Income tax is a key source of government funding and is the Central Government's largest revenue generator.