Indirect Tax

Name-Shringar Thakkar
Roll No-172
Division-A
Direct Tax

• A direct tax is a tax that a person or organization pays directly to the entity that imposed it.
An individual taxpayer, for example, pays direct taxes to the government for various
purposes, including income tax, real property tax, personal property tax, or taxes on assets
Major types of direct tax include :
• Income Tax: Levied on and paid by the same person according to tax brackets as defined by
the income tax department.
• Corporate Tax: Paid by companies and corporations on their profits.
• Wealth Tax: Levied on the value of property that a person holds.
• Estate Duty: Paid by an individual in case of inheritance.
• Gift Tax: An individual receiving the taxable gift pays tax to the government.
• Fringe Benefit Tax: Paid by an employer that provides fringe benefits to employees, and is
collected by the state government.
Indirect Tax

• An indirect tax is a tax that is levied upon goods and services before they reach the customer
who ultimately pays the indirect tax as a part of market price of the good or service purchased.
Some types of indirect taxes are :
• Excise Duty: Payable by the manufacturer who shifts the tax burden to retailers and
wholesalers.
• Sales Tax: Paid by a shopkeeper or retailer, who then shifts the tax burden to customers by
charging sales tax on goods and services.
• Custom Duty: Import duties levied on goods from outside the country, ultimately paid for by
consumers and retailers.
• Entertainment Tax: Liability is on the cinema owners, who transfer the burden to cinemagoers.
• Service Tax: Charged on services rendered to consumers, such as food bill in a restaurant.
Difference between Direct Tax And Indirect
Tax
Direct Tax
• It is levied on income and
activities conducted.
• The burden of tax cannot be
shifted in case of direct tax.
• It is paid directly by person
concerned.
Indirect Tax
• It is levied on product or
services.
• The burden of tax shifted for
indirect taxes.
• It is paid by one person but he
recovers the same from another
person i.e. person who actually
bear the tax ultimate consumer.
Difference between Direct Tax And Indirect
Tax
Direct Tax Indirect Tax
• It is paid after the income • It is paid before goods/service
reaches in the hands of the reaches the taxpayer.
taxpayer • Tax collection is relatively easier.
• Tax collection is difficult. • Example GST, excise duty custom
• Example Income tax, wealth tax duty sale tax service tax
etc.
Advantages of Indirect Tax
• Convenience: Indirect taxes do not burden the taxpayer and are convenient as they
are paid only at the time of making a purchase.
• Ease of collection: Indirect taxes are easy to collect in comparison with direct taxes.
Since indirect taxes are only collected at the time of making purchases, the
authorities need not worry about their collection.
• Collection from the poor: Those who earn less than Rs.2.5 lakh p.a. are exempt from
income tax, which means that they do not contribute to the government. Since
indirect taxes are charged at the point of sale, all individuals, regardless of the income
tax slab under which they fall, contribute towards the growth of the economy.
• Equitable contributions: Indirect taxes are directly related to the costs of products and
services. What this essentially means that the basic necessities attract lower rates of
tax while luxury items are charged at higher tax rates, thereby ensuring that
contributions are equitable.
Disadvantages of Indirect Tax
• Indirect Tax charged sometimes are cumulative. This means that in a point-based
transaction system, middlemen involved are likely to charge their own service tax
which may result in the overall price of the product increasing.
• Indirect Tax can be regressive in nature. For example, salt tax remains the same
for both poor and rich, However, if a rich person defaults the payment, then the
penalties imposed will be higher as well.
• Indirect Tax are not industry friendly. Taxes are levied on raw materials and goods
which in turn increases the cost of production, thus not allowing industries to
expand as their competitive capacity is restricted.
Main Features of Indirect Tax

• Tax liability: The service provider or seller pays indirect taxes to the government,
and the liability is transferred to the consumer.
• Payment of tax: The seller pays indirect taxes to the government and the same is
transferred to the consumer.
• Nature: Indirect taxes were initially regressive in nature, but thanks to the
implementation of the Goods and Services Tax, they are now pretty progressive.
• Saving and investment: Indirect taxes are generally growth-oriented considering
the fact that they encourage consumers to save and invest.
• Evasion: It is difficult to evade indirect taxes because they are now implemented
directly through products and services.
Sources and Authority of Tax in India
• Central government, State government, local government get power to impose tax from Indian
Constitution.
• Article 245 and Article 246 deals with distribution of Taxation power.
• Article 245 of constitution is extent of law made by parliament and by legislature of state, both the
government have right to make laws. These are provided by constitution itself , these subject matters
provided in 7th schedule of Indian constitution.According to article 245 subject to provision of this
constitution , Parliament may make laws for whole or any part of the territory of India and legislature
can make law for any part of the State.
• Article 246 is related to the distribution of subject matters on which central government or state
government can make laws. It must be read with the 7th schedule of constitution.Taxation system in
IndiaTaxes plays contribution in total revenues. The Indian tax system is called three tier federal
structure which includes, cental government, state government and local municipal body.
• Article 256 No one can levy or collect the tax without the permission of law.Role of centre and state
government in Indian Taxation system Tax on custom duties, income tax service tax, cental excise duty is
collected by central government.Income tax on agricultural products, professional tax , VAT, state excise
duty, land revenue, stamp dutiesare collected by state government, octroi, property tax, water and
drainage are also collected by state government.
Introduction to GST
• Goods and Services Tax (GST) is an indirect tax (or consumption tax)
used in India on the supply of goods and services.
• It is a comprehensive, multistage, destination-based tax:
comprehensive because it has subsumed almost all the indirect taxes
except a few state taxes.
• Multi-staged as it is, the GST is imposed at every step in the
production process, but is meant to be refunded to all parties in the
various stages of production other than the final consumer and as a
destination-based tax, it is collected from point of consumption and
not point of origin like previous taxes.
Genesis of GST
• The history of the Goods and Services Tax (GST) in India dates back to the year 2000 and
culminates in 2017 with four bills relating to it becoming an Act. The GST Act aims to
streamline taxes for goods and services across India.
• The implementation of the Goods and Services Tax (GST) in India was a historical move,
as it marked a significant indirect tax reform in the country. The amalgamation of a large
number of taxes (levied at a central and state level) into a single tax is expected to have
big advantages.One of the most important benefit of the move is the mitigation of
double taxation or the elimination of the cascading effect of taxation. The initiative is
now paving the way for a common national market. Indian goods are also expected to
be more competitive in international and domestic markets post GST implementation.
• From the viewpoint of the consumer, there would be a marked reduction in the overall
tax burden that is currently in the range of 25% to 30%. The GST, due to its self-policing
and transparent nature, is also easier to administer on an overall scale.
 Need for GST
• GST is the most remarkable and ambitious tax reform in India’s post-independence history. If
asked about the need of GST in India then its aim and vision were to levy a single national
uniform tax across the nation on all types of goods and services. GST has replaced multiple
taxes like sales tax, service tax, etc., which made India more of an integrated national market
and brought more people into the taxation net is the need for gst. By improving efficiency, it
can add substantially to finances as well as the growth of the country. Implementing a new
tax regime, inculcating both goods and services by the State and the centre in a large and
complex system is perhaps unprecedented in the modern tax history of the globe.
• Why does India need GST
• Why India needs GST, so the answer to that is GST is a tax with a comprehensive and
continuous chain of set-off benefits to the level of retailers. It is mainly a tax only on value
addition at each stage, and a supplier at each step is allowed to set off through a credit tax
mechanism. The burden of GST is ultimately borne by the final consumer which is the end-
user of the commodity or service provided is the need of gst.
Extent and Commencement of GST
• This Act may be called the Central Goods and Services Tax Act, 2017.
• It extends to the whole of India except the State of Jammu and Kashmir.
• It shall come into force on such date as the Central Government may, by
notification in the Official Gazette, appoint:
• Provided that different dates may be appointed for different provisions of this Act
and any reference in any such provision to the commencement of this Act shall
be construed as a reference to the coming into force of that provision.
Meaning of GST

• The goods and services tax (GST) is a tax on goods and services sold
domestically for consumption.
• The tax is included in the final price and paid by consumers at point of
sale and passed to the government by the seller.
• The GST is a common tax used by the majority of countries globally.
• The GST is usually taxed as a single rate across a nation.
Features of GST
• Subsuming of 17 taxes at Central/States level.
• Consumption Based Tax.
• One Tax rate across the country.
• Taxable event – “Supply of Goods or Services”
• No differentiation in Goods or Services
• Comprehensive tax on Goods & Services
• No tax on tax.
• Free flow of credit.
• Value Addition Tax at each stage.
Benefits of GST
• GST eliminates the cascading effect of tax: GST is a comprehensive indirect tax that
was designed to bring indirect taxation under one umbrella. More importantly, it is
going to eliminate the cascading effect of tax that was evident earlier.
• Higher threshold for registration:Earlier, in the VAT structure, any business with a
turnover of more than Rs 5 lakh (in most states) was liable to pay VAT. Please note
that this limit differed state-wise. Also, service tax was exempted for service
providers with a turnover of less than Rs 10 lakh.
• Composition scheme for small businesses:Under GST, small businesses (with a
turnover of Rs 20 to 75 lakh) can benefit as it gives an option to lower taxes by
utilizing the Composition scheme.
• Simple and easy online procedure:The entire process of GST (from registration to
filing returns) is made online, and it is super simple.
Dual GST Model
• The dual GST model refers to a concept where both the Centre and states
simultaneously levy taxes on the supply of goods and services while the
administration is run separately.
• It is dissimilar to the Single National GST model, where the taxes are levied only
by the Centre involving sharing such revenue with the provinces/states.
• It is adopted in countries such as Australia.
• It is also different from the Single State GST model, where states have exclusive
rights to levy and collect taxes, such as in the USA.
Goods and Service Tax Network
• The Goods and Service Tax Network (GSTN) is a non-profit, non-government
organization which manages the entire IT system of the GST portal.
• The Goods and Service Tax Network (or GSTN) is a non-profit, non-government
organization.
• It will manage the entire IT system of the GST portal, which is the mother
database for everything GST.
• The government will use this portal to track every financial transaction and
provide taxpayers with all services – from registration to filing taxes and
maintaining all tax details.
Section 5 of the Integrated Goods and
Services Act, 2017 (IGST Act)
(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of
goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the
Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the
recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person:Provided that the
integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act,
1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the
Customs Act, 1962.
(2) The integrated tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation
turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council.
(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the
tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to
such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of
supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the
recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for
paying the tax in relation to such supply of goods or services or both.”
(5) The Government may, on the recommendations of the Council, by notification, specify categories of services, the tax on inter-State supplies of
which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to
such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:Provided that where
an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce
operator for any purpose in the taxable territory shall be liable to pay tax:
• Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also does not have
a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying
tax and such person shall be liable to pay tax.
Power to Grant Exemption from Tax
• If the Central or a State Government is satisfied that it is necessary in the public interest so to do, it may, on the
recommendation of the Council, by notification, exempt generally either absolutely or subject to such conditions
as may be specified in the notification, goods and/or services of any specified description from the whole or any
part of the tax leviable thereon with effect from the date of issue of notification or any date subsequent thereto
as may be specified in the said notification.
• If the Central or a State Government is satisfied that it is necessary in the public interest so to do, it may, on the
recommendation of the Council, by special order in each case, exempt from payment of tax, under circumstances
of an exceptional nature to be stated in such order, any goods and/or services on which tax is leviable.
• The Central or a State Government may, if it considers necessary or expedient so to do for the purpose of
clarifying the scope or applicability of any notification issued under sub-section (1) or order issued under sub-
section (2), insert an explanation in such notification or order, as the case may be, by notification at any time
within one year of issue of the notification under sub-section (1) or order under sub-section (2), and every such
explanation shall have effect as if it had always been the part of the first such notification or order, as the case
may be
• Every notification issued under sub-section (1) or sub-section (3) and every order issued under sub-section (2)
shall unless otherwise provided, come into force on the date of its issue by the Central or a State Government for
publication in the Official Gazette or from any date subsequent to the date of its issue as may be specified therein;
and be made available on the official website of the department of the Central or a State Government.
Current Exemption List
• Goods like petrol, alcohol, etc that for human consumption and non-taxable do not attract GST for supply under
the GST Act.
• The supply of goods to the SEZ that is Special Economic Zone or SEZ developer comes under GST exemption list.
• Supply of goods that come under zero rated list, which means tax rate of the goods that is fixed at 0% come
under GST exemption list. These goods include fresh vegetables, fresh milks, and so on

EXEMPTED SERVICES IN GST EXEMPTION LIST

• All the services related to agriculture including harvesting, cultivation, supply, packaging, warehouse, renting or
leasing of machinery, etc. are exempted from GST. However, this does not include the rearing of horses.
• Transportation of individuals via public transport, metered cabs, auto-rickshaws, metro, etc.
• Transport of agriculture produce and transportation of goods outside of India
• Transportation of goods where the total amount of charges is less than Rs 1500
• Government and foreign diplomatic services
• Services provided by RBI or any foreign diplomatic mission in India are also exempt from GST
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