The taxes collected by the Indian Govt can broadly be defined into 2 categories – Direct and Indirect. The Direct Taxes are basically the taxes which are directly levied on the Income of an Individual. Some examples of Direct Taxes are Income Tax, Surcharge, Gift Tax etc. The Direct Taxes in India are implemented by Central Board of Direct Taxes (CBDT).

Indirect Taxes are basically the taxes which are not directly levied on the Income of an Individual but is indirectly levied on the Expense incurred by the Individual. This tax is basically levied on the seller of goods or the provider of service but in most cases, he passes it on to the end consumer and therefore, it is the end consumer who bears this in the form of an indirect tax.

In other words, Indirect Tax is levied on the person who is making the sale but he can recover the same from the buyer. In some cases, the Indirect Tax portion is specifically mentioned in the invoice whereas in other cases – the portion of indirect tax is automatically included in the transaction value and not disclosed separately.

An Indirect Tax increases the price of the product or the service and is levied at the same rate to everyone irrespective of the income of the person whereas the rate of income tax varies depending on the income of the Individual.

Some examples of these indirect taxes are Service Tax, Excise Duty, Customs Duty, VAT, Entertainment Tax, Luxury Tax etc.

GST: Merging of various different of Indirect Taxes

In India, there are many different Indirect Taxes which are applicable. For eg: Service Tax is levied on Services, Excise Duty is levied on Manufacturing, Customs Duty is levied on Import of Goods etc.

As there are many different types of indirect taxes levied on the expense incurred by a buyer, the govt now intends to merge all these forms of indirect taxes and levy a common indirect tax by the name of GST i.e. Goods and Service Tax.

The Indian Govt is actively working towards the implementation of a common indirect tax by the name of GST which is expected to be applicable in a couple of years. Merging of all these taxes will reduce the hassles of compliances associated with all these taxes and improve the tax governance in India.

Till the time – GST is not implemented in India, the following taxes would continue to be applicable.

Various Types of Indirect Taxes in India

The following are some of the most widely applicable Indirect Taxes in India

1. Service Tax in India

Service Tax is a tax which is levied on the Services provided by an entity. If an entity is providing any service, they are required to levy Service Tax on the same. This service tax is collected from the recipient of service and deposited with the Central Govt.

To read more about Service Tax, you may refer this article on What is Service Tax and Current Rate of Service Tax in India.

Service Tax is levied on all services except the Services specified in the Negative List of Services. Apart from this, Service Tax Exemption is allowed to Small Scale Service Providers if the Total Value of Services provided by them during the year is less than Rs. 10 Lakhs.

2. Excise Duty in India

Excise Duty is an indirect tax levied on those goods which are manufactured in India. The taxable event in this case is manufacture and the liability of central excise duty arises as soon as the goods are manufactured. It is a tax on manufacturing which is paid by the manufacturer, who passes its incidence on to other customers and recovers the same from them.

The rules and provisions as mentioned in the Central Excise Act, 1944 are applicable for the levy of excise duty in India. This tax is also levied by the Central Govt.

3. VAT in India

VAT stands for Value Added Tax and is levied on the sale of movable goods in India. VAT is a multi-point destination based system of taxation, with tax being levied on value addition at each stage of transaction in the production/ distribution chain. The term ‘value addition’ implies the increase in value of goods and services at each stage of production or transfer of goods. VAT is a tax on the final consumption of goods or services and is ultimately borne by the consumer

VAT is basically a state subject, derived from Entry 54 of the State List, for which the States are sovereign in taking decisions. The State Governments, through Taxation Departments, are carrying out the responsibility of levying and collecting VAT in the respective States

4. Customs Duty in India

Customs Duty is a type of Indirect Tax which is levied on goods which are imported into India. In some cases, it is also levied when the goods are exported from India.

In India, the basic law for levy and collection of customs duty is Customs Act, 1962 . It provides for levy and collection of duty on imports and exports, import/export procedures, prohibitions on importation and exportation of goods, penalties, offences, etc.

5. Securities Transaction Tax (STT)

Securities Transaction Tax or STT is a type of Indirect Tax which is levied at the time of sale/purchase of securities through the Indian Stock Exchanges. These securities include Shares, Mutual Funds, F&O Transactions etc. Securities Transaction Tax was introduced in India by the 2004 Budget and is applicable with effect from 1st April 2004.

The reason for the introduction of Securities Transaction Tax was to lower the tax on short term capital gains and to make the long term capital gains exempted from the levy of any tax.

6. Stamp Duty

Stamp Duty is an indirect tax levied by the State Govt’s on the transfer of immovable property located in their state. It is also levied by the Govt on all Legal Documents. The Stamp Duty Rates vary from State to State.

7. Entertainment Tax

In India, Entertainment Tax is levied on every financial transaction that is related to entertainment and is reserved primarily for the state governments. Some forms of entertainment on which entertainment tax is levied include Amusement Parks, Video Games, Arcades, Exhibitions, Celebrity Stage Shows, Sports Activities etc.

Apart from the above mentioned Indirect Taxes, there are several other Indirect Taxes in India as well like Luxury Tax, Sales Tax, Octroi etc.