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Indirect Taxation

Indirect Taxes are applied on the manufacture or sale of goods and services. These are initially paid to the government by an intermediary, who then adds the amount of the tax paid to the value of the goods / services and passes on the total amount to the end user.

Features of Indirect Taxes:

Levied on goods and services sold by an intermediary to final consumers. Consumers than pay the tax in the form of higher price of items. Broadly divided into categories such as sale of goods, imported/exported goods, offering of services and manufacture of goods.

Indirect taxes are levied on clearance of goods and services from the origin, instead of actual sale of the products to the customers. What this means is that the intermediary will pay excise duties irrespective of whether they could sell the good or service to consumers.

Indirect taxes fall under both the central and state governments according to specific type of indirect tax. For instance, VAT is levied by the state governments whereas CST is levied by the central government.


Key examples of indirect taxes are

Sales Tax

Service Tax

Excise Duty

Sales Tax

Sales Tax is charged on the sale of movable goods. It is collected by the Central Government in case of inter-state sales (Central Sales Tax or CST) and by the State Government for intra-state sales (Value Added Tax or VAT). The rates of taxation vary depending on the product type.

Service Tax

Service tax is applicable on all services provided in India except a specified negative list of services that are exempt. It is paid by the service provider to the government who in turn collects it from the end user by the service provider at the time of provision of such service.

Excise Duty

Excise duty is applicable on the manufacture of goods sold in India. Once goods are manufactured, it is originally paid by the manufacturer directly to the Central Government. When the goods change hands from the manufacturer to the buyer, this tax is bundled by the manufacturer along with the cost of goods and passed on to the buyer.