What are the different types of indirect taxes levied in India? 5 types of indirect taxes and their meaning are discussed in this post.
Taxes in India can be divided into two broad categories- direct and indirect. Direct taxes are directly levied on the income. Income tax, gift tax, and surcharge are some of the most common examples of direct taxation in India.
On the other hand, indirect tax is not directly levied on the income but the expenses incurred, consumption, rights and privileges, services, etc. Like direct taxes, there are various types of indirect taxes in India. Here’s a quick overview of 5 of the most common indirect taxes-
The introduction of GST (Goods and Services Tax) in 2017 led to the bundling of the majority of the indirect taxes into a single tax. At the state level, it subsumed state excise duty, service tax, additional excise duty, and countervailing duty. At the central level, GST bundled entertainment tax, sales tax, purchase tax, octroi, etc. into a single tax.
While most of the goods and services are now under the purview of GST, there are some product categories such as petroleum products and alcohol with multiple indirect taxes.
2. Service Tax
Service tax is levied on any kind of service offered by an entity. The service provider is responsible for collecting service tax from the service recipient and depositing the same with the central government.
However, small-scale service providers with the value of services lower than Rs. 10 lakh in a financial year are exempted from collecting service tax. Also, the government has introduced a negative list of services where service tax is not applicable.
3. Sales Tax
Sales tax is levied on sales of goods. The state government collects intra-state sales tax, and the central government collects sales tax on inter-state sales. Apart from the interstate and intra-state sales, sales tax is also applicable on sales during the import or export of any goods.
The seller collects the sales tax from the buyer. The tax amount is then deposited with the state or central government based on the nature of the sale.
4. Customs Duty
Customs duty is applicable to goods that are imported to India. It is also levied on the export of goods in a few cases. The Customs Act, 1962, includes all the provisions for levying and collecting customs tax in India.
All the provisions and regulations related to levying and collecting customs duty, prohibitions on imports and exports, import/export procedures, offences, penalties, etc. are included in the Customs Act.
STT or Securities Transaction Tax is also a type of indirect taxation levied on selling and purchasing securities from the stock exchange. The securities can be shares, futures transactions, options transactions, or mutual fund transactions.
STT was introduced to reduce the STCG (Short-Term Capital Gains) tax on equity investments and exempt LTCG (Long-Term Capital Gains) from other taxes.
How Should Businesses Deal with Indirect Taxes in India?
Businesses in India are responsible for collecting various indirect taxes based on the nature of their operations. To comply with the regulations, most companies rely on the expertise of professional tax advisors.
As reputed tax advisory firms are equipped with the knowledge and expertise to manage indirect taxes, they help their clients transparently collect and deposit indirect taxes and comply with all the applicable rules and regulations.