Indirect tax

In the colloquial sense, an indirect tax (such as sales tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). The intermediary later files a tax return and forwards the tax proceeds to government with the return. In this sense, the term indirect tax is contrasted with a direct tax which is collected directly by government from the persons (legal or natural) on which it is imposed. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be.
An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. Examples would be fuel, liquor, and cigarette taxes. An excise duty on motor cars is paid in the first instance by the manufacturer of the cars; ultimately the manufacturer transfers the burden of this duty to the buyer of the car in form of a higher price. Thus, an indirect tax is such which can be shifted or passed on.

Indirect Tax or the tax that is levied on goods or services rather than on persons or organizations are of different types in India like Excise Duty, Customs Duty, Service Tax, and Securities Transaction Tax. In India, there are a series of Tax laws and regulations in order to control the indirect taxation, which can be either law, made by the central government or even can be state specific laws. As a result these taxes are an important part of the total cost. It is thus essential to make appropriate planning for such costs. Nearly all of the activities that are subjected to indirect taxation range from manufacturing to those required for final consumption. Activities related to trading, imports, and services are also included in this list. As a result Indirect Tax has an impact on all business lines. At present the Indirect Taxes in India are under a transformation due to the changing fiscal reforms of the Indian government. Many new acts and laws are being introduced replacing the old laws and all related issues, which have become redundant. However, it should be remembered that such new laws while on one hand would create new opportunities, but also at the same time would lead to a certain extent of uncertainty and judicial proceedings. In general, the Indirect Tax in India is a complex system of interconnecting laws and regulations, which includes specific laws of different states. For this there are many reliable organizations in India, which employs efficient Indirect Tax professionals to help their clients. These tax professionals with their in-depth knowledge and wide-ranging experience offers effective planning methods to their clients in order to help in their cost minimization. The Indirect Taxation regime encompasses various types of taxes like Sales Tax, Service Tax, Custom and

Excise Duties, VAT and Anti-Dumping Duties, and the organizations provide services in all these related fields. In the recent year, the Indian government has undertaken significant reform of indirect taxation system. This includes the initiation of a region-based and state-level VAT on goods. However, it should be noted that as taxes still forms a barrier to inter-state trading in order to attain a secured market for the activities related to services and goods more reform is needed.

Some of the reforms that can be introduced for a better indirect taxation system in India are The serialized set of Indirect Taxes so far activated at the central and state levels should be amalgamated and treated as a single tax. The integrated Indirect Tax should be neutral at all levels such that chances of fraudulence would be minimized The Central Sales Tax, which obstructs easy trading between different states, is being under the process of termination that would help to abolish the control measures on the inter-state trade By the year 2010 the Indian government has planned to activate a goods and services tax neutral at all levels in order to fulfill these objectives. The government can undertake either an introduction of a national VAT or a system, which would permit both a state VAT, or a central VAT. Along with this if the government also can incorporate a central VAT that can be rebated, on the trade across the boundary lines, then there would be minimum chances of fraudulence.

Now we defines different types of Indirect taxes in India.

Excise duty
Excise duty is imposed on the manufacturer of excisable products and is levied on a wide variety of commodities manufactured in India. This duty is an important source of revenue for the central government. Rates vary depending on the type of commodity, and even for the same type of commodity the rates often differ depending on circumstances such as end-use and taxability of inputs. Although generally ad valorem, the rates may also be specific or a combination of ad valorem and specific. They are prescribed in the Central Excise Tariff Act and are revised from time to tie by the annual Finance Acts or through notifications. Reference to the former Act is required to determine the applicable rate for any commodity in question.

Sales tax
Sales tax is the most important source of revenue to the states and is imposed on virtually all sales of goods. It is primarily the liability of the seller, who generally recovers it from the purchaser. Each state has its own sales tax act under which tax is imposed at different rates. Sales of imported items and sales by way of export are generally exempt from sales tax. Luxury goods are normally taxed at a higher rate than other commodities. The sales tax acts of certain states provide for certain additional levies, i.e., works contracts tax (imposed on a contractor for manufacture, erection, repairs, etc.), turnover tax (imposed on the value of turnover exceeding a certain limit) and purchaser tax (imposed on the value of goods purchased from suppliers that are not registered under the sales tax laws). The Central Sales Tax Act covers interstate sales. A concessional rate of sales tax is applicable if the buyer is registered with the Sales Tax authorities. It is advisable for an investor to be aware of sales tax liability under any proposed contract, because its impact can be considerable. Excise duty must be paid before the goods are cleared from the factory. Small-scale industries enjoy exemption from excise tax up to the specified value of goods cleared. The state governments are also empowered to levy excise duty on a few commodities, such as liquor, if they are not taxed by the central government. Excise drawback is available if the goods manufactured are exported.

Customs duties
Customs duties are levied on commodities imported into India. However, drawbacks may be available if the imported items are reexported or used in manufacture for export. Customs duty is also imposed on the value of certain exports. The rates are prescribed in the Customs Tariff Act, 1975 and are revised from time to time by the annual Finance Act or by various notifications. Customs duties, particularly on imports, may be a significant cost factor in an Indian project due to the generally high rates of duties, unless corresponding drawbacks are available upon export.

Stamp duty

Stamp duty is levied at various rates on documents, such as bills of exchange, promissory notes, insurance policies, contracts effecting a transfer of shares, debentures, and conveyances for the transfer of immovable property. Stamp duty on the transfer of shares and conveyances of immovable property is normally payable by the purchaser. The rates are prescribed by central government legislation, the Indian Stamp Act 1899, but rates on some documents have been revised through state government legislation.

Expenditure tax
Expenditure tax is levied under the Expenditure Tax Act, 1987 at the rate of 10 percent on payments made to hotels toward room charges, food, beverages, and other services. This tax is collected by hotels from their customers and deposited with the central government. However, it is not applicable to hotels with room charges of less than Rs 1,200 per day pr person.

Service tax
Service tax, introduced for the first time in 1994, is imposed at 5 percent on commissions and brokerage fees charged by stockbrokers, the gross amount of telephone bills, and premiums for nonlife insurance.

Wealth tax
Wealth tax is essentially a direct tax and is levied on the taxable wealth of individuals and companies.

Other taxes
Various other taxes or rates are levied by the municipal authorities (e.g., on goods entering their jurisdiction and on the annual value of property), by state governments (e.g., on motor vehicles and amusements) and by the central government (e.g., on foreign travel and domestic air travel).