Indirect Tax

They apply to both products and services. The supplier is immediately responsible for payment, but the final recipients of these goods and services bear the cost.

Merits of Indirect Taxes:

  • Due to the fact that it is paid in smaller sums, it is thought to be more convenient.
  • Evasion is not as likely to happen.

Demerits of Indirect Taxes:

  • Its nature is more regressive.
  • High expense of administration.
  • Saving is discouraged.

Types of Indirect Tax:

a. Good and Services Tax (GST):

GST, or goods and services tax, is a consumption tax levied in India on the provision of products and services. Every step of the manufacturing process for any goods or value-added services is subject to GST. The parties involved in the manufacturing process will receive it back (and not the final consumers).

The GST eliminated many other taxes and fees, such as the value added tax (VAT), octroi, customs duty, central value added tax (CENVAT), as well as customs duty and excise duty. Electricity, alcoholic beverages, and petroleum products are some of the goods and services that are exempt from GST taxation. On these, as was the case under the old tax structure, state governments are taxed separately.

The Goods and Services Tax (GST) went into effect in 2017. Regardless of where the product is consumed, GST is levied at every step of the production chain. Under the new tax structure, there are four types of GST:

  • Integrated Goods and Services Tax (IGST).
  • State Goods and Services Tax (SGST).
  • Central Goods and Services Tax (CGST).
  • Union Territory Goods and Services Tax (UTGST).

b. Integrated Goods and Services Tax (IGST):  

The Integrated Goods and Services Tax is imposed on the transfer of goods between states. This tax is governed by the IGST Act, and the organization is in charge of collecting IGST in accordance with the Act. The cash received will then be distributed to the individual states by the federal government.

For instance, the IGST rate is 18% if a Maharashtra vendor sells his goods for Rs. 6000 to a Karnataka customer. The merchant will pay the total amount after deducting the IGST of Rs. 6900, with the central government receiving the remaining Rs. 900.

c. State Goods and Services Tax (SGST):

All items sold inside the state’s borders are subject to the Items and Services Tax. If the dealer sells goods within the state, he is responsible for paying GST and SGST.

For instance, a Maharashtra dealer who sells goods to a Maharashtra customer is obligated to pay SGST. If the GST rate is 18%, the funds will be divided equally between the 9% CGST and the 9% SGST. If a business sells goods for Rs. 7000, it is required of him to pay Rs. 7900, of which Rs. 450 will be given to the state government and Rs. 450 to the federal government.

d. Central Goods and Services Tax (CGST):

The Central Items and Services Tax is imposed on items sold within a state’s borders, same like the State Goods and Services Tax (interstate). For instance, if a merchant sells items for Rs. 7000, the CGST and SGST portions of the GST will be split.

e. Union Territory Goods and Services Tax (UTGST):

The Union Territories’ good and services tax is identical to the state good and services tax. It is levied on the delivery of products and services in the Union Territories of the Andaman and Nicobar Islands, Chandigarh, Daman Diu, Dadra Nagar Haveli, and Lakshadweep. The Union Territory Government collects the funds, and this act is governed by the UTGST Act.

Types of Taxes

India is a democratic, socialist, and republican nation. The supreme law of the nation in India is the Constitution. The Indian Constitution is supreme over all other laws, including the Income Tax Act and the Central Goods and Services Tax Act. According to the Constitution, “no tax shall be imposed or collected unless by Authority of Law”.

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