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Indirect Taxes

Indirect taxes are taxes that can be passed on to another entity or individual. They are usually imposed on a manufacturer or supplier who then passes on the tax to the consumer. The most common example of an indirect tax is the excise tax on cigarettes and alcohol. VAT is an example of Indirect taxes. There are many indirect taxes applied by the government of India.

Types of Indirect Taxes

There are different types of indirect tax in India.

  1. Service tax: This tax is levied by an entity in return for the service provided by them. The service tax is collected by the Government of India and deposited with them.
  2. Excise duty: When any product or good is manufactured by a company in India, then the tax levied on those goods is called Excise Duty. The manufacturing company pays the tax on the goods and in turn recovers the amount from their customers.
  3. Value Added Tax: This type of tax is levied on any product sold directly to the customer and is movable. VAT consists of Central Sales Tax which is paid to the Government of India State Central Sales Tax which is paid to the respective State Government.
  4. Custom Duty: This is a tax levied on the goods imported to India. Sometimes, Custome Duty is also levied on products that are exported out of India.
  5. Stamp Duty: It is a tax levied on the transfer of any immovable property in a state of India. The state government in whose state the property is located charges this type of tax. Stamp tax is also applicable on all legal documents too.
  6. Entertainment Tax: This tax is charged by the state government and applies to any products or transactions related to entertainment. Purchasing of any video games, movie shows, sports activities, arcades, amusement parks, etc. are some of the products on which Entertainment Tax is charged.
  7. Securities Transaction Tax: This tax is levied during the trading of securities through the Indian Stock Exchange.

Features of Indirect Tax

  • Tax liability: The service provider or seller pays indirect taxes to the government, and the liability is transferred to the consumer.
  • Payment of tax: The seller pays indirect taxes to the government and the same is transferred to the consumer.
  • Nature: Indirect taxes were initially regressive, but thanks to the implementation of the Goods and Services Tax, they are now pretty progressive.
  • Saving and investment: Indirect taxes are generally growth-oriented because they encourage consumers to save and invest.
  • Evasion: It is difficult to evade indirect taxes because they are now implemented directly through products and services.

Advantages of Indirect Tax

  • Convenience: Indirect tax does not burden the taxpayer and is convenient as they are paid only at the time of making a purchase. Moreover, state authorities find it convenient to levy indirect taxes because they are collected directly at the stores/factories which helps in saving a lot of time and effort.
  • Ease of collection: Indirect taxes are easy to collect in comparison with direct taxes. Since indirect taxes are only collected at the time of making purchases, the authorities need not worry about their collection.
  • Equitable contributions: Indirect tax is directly related to the costs of products and services. What this essentially means is that the necessities attract lower rates of tax while luxury items are charged at higher tax rates, thereby ensuring that contributions are equitable.

Indirect Taxes

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