All You Should Know About Indirect Taxes In India


Direct and indirect taxes are levied by the central and state government. Tax is an involuntary fee imposed and collected by the government to pay for the goods and services it provides including schools, infrastructure, law enforcement and military production. The tax comes into picture where there is a sale of product or service, ownership of assets or where profits are earned. The amount of tax paid by an entity or an individual depends fairly upon its earnings and spending.


 

What is Indirect Tax?

It is a tax levied by the Government on goods and services and not on the income, profit or revenue of an individual and it can be shifted from one taxpayer to another. Earlier, an indirect tax meant paying more than the actual price of a product bought or a service acquired. And there was a myriad of indirect taxes imposed on taxpayers.

Let us get to know indirect taxes in India:

 

Service tax

This tax is levied by entities for rendering services like consulting, legal, and other such services. This tax is collected from the service recipients and paid to the Central Government. From 1st June 2016, service tax was 14% with Swacch Bharat Cess (0.5%) and Krishi Kalyan Cess (0.5%) bringing up the applicable rate to 15%. Small service providers with an income of less than INR 10 lakh per annum are exempted from paying this tax.

VAT (Value-Added Tax)

Value Added Tax (VAT) is imposed on the sale of movable goods in the nation. VAT is levied at all stages of the production and distribution channel that include an instance of value addition. This tax is levied by the State Governments under Entry 54 of the State List.

Customs duty

It is one of those indirect taxes that are applicable for bringing imported goods into the country. In certain instance, this duty may also be levied on exported goods. The Customs Act, 1962 provides regulations on the levy and collection of this duty, import and export procedures, penalties, prohibitions, and offence.

Securities Transaction Tax (STT)

This indirect tax is imposed when stocks are sold or purchased through any Indian stock exchange. STT was introduced in 2004 and is applicable to shares, mutual funds, and future and options transactions. STT was imposed to reduce the short-term capital gains tax and eliminate long-term capital gains tax.

Stamp duty

This is an indirect tax charged by state governments on the transfer of immovable property within their jurisdiction. In addition, stamp duty is mandatory on all types of legal documents. Its rates vary from one state to another.

Entertainment tax

The state governments charge such tax on every transaction related to entertainment. Some examples are movie tickets, video game arcades, stage shows, exhibitions, amusement parks, and sports-related activities.

GST (Goods & Service Tax)

With the implementation of GST, we have already witnessed a number positive changes in the fiscal domain of India. The various taxes that were mandatory earlier are now obsolete, thanks to this new reformed indirect tax. Not just that, GST is making sure the slogan “One Nation, One Tax, One Market” becomes the reality of our country and not just a dream. That said, with the dawning of the ‘Goods & Services Tax (GST), the biggest relief so far is clearly the elimination of the ‘cascading effect of tax’ or the ‘tax on tax’ quandary. Cascading effect of tax is a situation wherein the end-consumer of any goods or service has to bear the burden of the tax to be paid on the previously calculated tax and as a result would suffer an increased or inflated price. Under the GST regime, however, the customer is exempted from the tax they would otherwise pay as a result of the cascading effect.

Conclusion

On a larger perspective, we can agree that both direct and indirect taxes are important for the betterment of our economy. For any Legal support, we will be happy to help you. Contact BDS Legal Services now.

About BDS Legal Services:

 

BDS Legal Services is a leading national law firm in India comprising over numerous professionals, with offices in Mumbai (Headquarter) and Pune. BDS Legal Services was set up in 2012 and has since established an excellent reputation for its integrity and value based proactive, pragmatic and innovative legal advice and its ability to help clients effectively traverse the complicated legal and regulatory regime in India. The mission of the Firm is to provide outstanding legal solutions in the chosen practice areas with a strong emphasis on ethics. Clients benefit from the expertise and experience as a large firm while still enjoying the privilege of personal attention and responsiveness of a small firm. Our Practice areas are – IPR, Secretarial, Legal, Company Registration, Annual Filings, Returns and Tax

 

Get in touch for free consultation on info@bdslegalserv.com or call 022 50677213 / 022 50677219 / 022 50677212.

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