ICFAI UNIVERSITY TRIPURA

Name: Bishal Debbarma

ID No.:20IUT0360042
Subject: Indirect Tax
Code: BIT222
Course: B.Com 2nd year
Analysis of Direct and Indirect Tax on Job Workers
Keyword:-
What is job work?
Most of the industries today hand over a part of their processing to
outsiders. In other words, Job work is nothing but the outsourcing of
activities by the principal manufacturer. The work done by the job
worker may either amount to manufacture or can even be a service
activity. Further, a manufacturer can send his goods to a job worker at
any point in time. Be it at the initial stage, the intermediate stage or
even at the final stage for packing and assembling. Add to that, the
principal manufacturer might send either raw materials, semi-finished
goods or even finished goods to the job worker.
INTRODUCTION
• The idea of a consumption-based tax system has gained ever greater
attention in tax policy debates of recent years. In the European Union (EU),
most of the ten states that became EU members in May 2004 rely more on
a value-added tax than on a corporate income tax. Furthermore, these
states generally have lower corporate income tax rates than do the old EU
member states. This new tax structure within the EU has given rise to much
competition among the old and new EU member states with regard to both
tax rates and structure of the tax system. In Germany, for example, the Tax
Reform Act 2008 reduced the overall corporate tax rate from about 40 to
about 30 percent. Almost at the same time, the government has raised the
value-added tax rate from 16 to 19 percent, thereby increasing the
importance of indirect taxes in the overall tax system. The United States
Congress also is currently debating the Fair Tax Act of 2007 (H.R.25), which
is a proposal to repeal the income tax and other current federal taxes, such
as the estate and gift tax, and implement a national sales tax instead.
What are the tax implications on the income
earned by a Job worker?
• Direct Tax 1 When gross Minimum of 6%
receipts/total of the gross
• Income Tax turnover receipts/ total
received turnover of the
• The income received by a job through an assessee will be
worker will usually be liable to account payee considered as
cheque/ his business
tax under the head, “Profits and account payee income
Gains of Business and bank draft/
electronic
Profession”. Section 44AD of the clearing system
Income Tax Act gives an option
2 When the Minimum of 8%
to an eligible assessee who is payment is of the gross
engaged in an eligible business, through other receipts/ total
modes(other turnover will be
to consider the following as than those considered as
business income: mentioned his business
Direct Tax:
Advantages:-
Direct taxes do have a certain advantage for a country’s social and
economic growth. To name a few,
• It curbs inflation: The Government often increases the tax rate when
there is a monetary inflation which in turn reduces the demand for
goods and services and as a result of descending demand, the
inflation is bound to condense.
• Social and economic balance: Based on every individual’s earnings
and overall economic situation, the Government has well-defined tax
slabs and exemptions in place so that the income inequalities can be
balanced out.
Disadvantages:-
• Direct taxes come with a handful of disadvantages. But, the very time-
consuming procedures of filing tax returns is a taxing task itself.
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.
Goods and Service Tax (GST) is one of the existing indirect tax levied in India. It has
subsumed many indirect tax laws.
Let’s discuss a few indirect taxes that were earlier imposed in India:
• Customs Duty- It is an Import duty levied on goods coming from outside the country,
ultimately paid for by consumers and retailers in India.
• Central Excise Duty– This tax was payable by the manufacturers who would then shift
the tax burden to retailers and wholesalers.
• Service Tax– It was imposed on the gross or aggregate amount charged by the service
provider on the recipient.
• Sales Tax– This tax was paid by the retailer, who would then shifts the tax burden to
customers by charging sales tax on goods and service.
• Value Added Tax (VAT)– It was collected on the value of goods or services that were
added at each stage of their manufacture or distribution and then finally passed on to
the customer.
Conclusion:-
• On a larger perspective, we can agree that both direct
and indirect taxes are important for the betterment of
our economy.
References:-
https://cleartax.in
https://www.educba.com