What is Indirect Tax?
Indirect tax is a tax imposed by the Government on goods and services consumed. From the name itself, it can be understood that it is levied on a person indirectly. The cost of a product or service includes taxes levied by the Government. Thus, a person while making payment for goods or services, pays indirect taxes without knowing that he is paying tax.
Major Indirect taxes in India:
- Goods and Services Tax (GST) – levied on supply of goods or services
- Customs Duty – paid by an importer or exporter for the goods imported or exported out of India
- Excise Duty – levied on goods which are manufactured in India like natural gas, high-speed diesel, tobacco products, aviation turbine fuel and petroleum crude.
Difference between Direct and Indirect taxes:
| Basis of Comparison: | Direct taxes | Indirect taxes |
| Meaning | Tax levied on income earned by the tax payer | Tax levied on supply of Goods or Services |
| Examples | Income tax, wealth tax, etc. | GST, Customs duty, etc. |
| Governed by | Central Board of Direct Taxes (CBDT) | Central Board of Indirect Taxes and Customs (CBIC) |
| Burden of tax is on | The person who earns the income | Final Consumer |
| Burden of Payment of tax is on | The person who earns the income | Intermediaries like suppliers, service providers, etc. |
What is GST (Goods and Service Tax)?
GST is a tax on supply of goods or services or both except supply of the alcoholic liquor for human consumption. Supply includes sale, stock transfers and branch transfers.
Features of GST:
- Dual GST : Under the GST law, the tax is shared between the Central Government and the State Government or Union territory.
- Destination-based tax : GST is collected by the State/ UT of buyer/ recipient (place of consumption/ place of supply).
- Levied at the time of supply of goods or services.
- Based on the principle of value added tax.
Under the dual GST model, the Centre and States/ UT would be simultaneously levying GST.
Applicable taxes under GST law
- Central Tax (CGST) – levied on intra-State supply of goods or services
- State Tax (SGST) – levied on intra-State supply of goods or services
- Integrated Tax (IGST) – levied on Inter-State supply of goods or services
- Union Territory Tax (UTGST) – levied on intra union territory supply of goods or services.
What are the taxes subsumed and not subsumed into GST?
| Subsumed (Replaced by GST) | Not Subsumed |
| Value Added Tax | Mandi Tax |
| Purchase Tax | Stamp Duty |
| Entry Tax, Octroi, Local Body Tax | Profession Tax |
| Sales Tax | Motor Vehicle Tax |
| Entertainment Tax (other than the taxes levied by Local bodies) | Sale tax on five petroleum products namely Petroleum Crude, Motor Spirit (petrol), High Speed Diesel, Natural Gas and Aviation Turbine Fuel for a period of time. GST Council would decide the date of including them in GST |
| Luxury Tax | Electricity Duty |
| Betting, Gambling and Lottery Tax | Road & Passenger Tax |
| Surcharges and State Cesses | Toll tax |
| Central Excise Duty (barring five petroleum products namely Petroleum Crude, Motor Spirit (petrol), High Speed Diesel, Natural Gas and Aviation Turbine Fuel for a period of time | Customs duty |
| Additional Duties of Excise | |
| Excise on Medicinal and Toiletries Preparation Ac | |
| Additional Customs Duty (CVD) – equal to central excise on like goods manufactured in India | |
| Special Additional Duty – Supposed to be equal to CST which was earlier 4%. Not changed inspite of drop in CST rate to 2%. | |
| Surcharge and Cesses on aforesaid duties and taxes | |
| Central Sales Tax | |
| Service Tax |
Rates of GST
The maximum GST rate is 40% (CGST @20% and SGST @20%).
The current rates of GST are Nil, 5%, 12%, 18% or 28%.
GSTIN – Goods and Services Taxpayer Identification Number
Under the GST regime, all registered taxpayers shall be assigned a 15-digit PAN -based Goods and Services Taxpayer Identification Number (GSTIN).
For Example: 32 ABXCS4758U 1 Z P
State code PAN No. of reg in a State Default Number Check code
32 ABXCS4758U 1 Z P
Distinct Persons
Distinct Persons are part of same organization (having same PAN), but treated as distinct entities under GST law. For example, R Ltd (PAN: ABCCS4758H), a company having offices at Kerala and Tamilnadu, having different GST registrations. These two offices are distinct persons under GST.
For Example:
XYZ Ltd (Kerala) – 32ABXCS4758H1ZR
XYZ Ltd (Tamilnadu) – 33ABXCS4758H1ZP
Goods and Services Tax Council
GST Council comprises of the Union Finance Minister (the Chairman of the Council), the Minister of State (Revenue) and the State Finance/Taxation Ministers. It makes recommendations to the Central Government and State Governments regarding various matters relating to GST.
Central Government shall have a weightage of 1/3rd of the votes cast and all the State Governments taken together shall have a weightage of 2/3rd of the total votes cast in a meeting. One half of the total number of members of the GST Council shall constitute the quorum at its meetings. Thus, any decision in GST Council cannot be taken without the consent of the Central Government. Every decision of the GST Council shall be approved by a majority of not less than 3/4th of the weighted votes of members present and voting.
GST Portal
GST portal developed and maintained by Goods & Services Tax Network (GSTN) is www.gst.gov.in.
This portal provides numerous services like GST registration, filing of GST returns, refund applications, etc.
Other useful links are:
https://ewaybill.nic.in/ – for generation of e-way bill (will discuss later).
https://einvoice1.gst.gov.in/ – Invoice Registration Portal (IRP) (will discuss later).