Indirect Tax System in India – List of Taxes Under Indirect tax. India has a three-tier federal structure, comprising the Union Government, the State Governments and the Urban/Rural Local Bodies. The power to levy taxes and duties is distributed among the three tiers of Governments, in accordance with the provisions of the Indian Constitution. Now check more details for “Indirect Tax System in India” from below. Principal indirect taxes levied in India are listed below:

Indirect Tax System in India

Indirect Tax System in India

TaxRelevant StatuteParticulars
Customs Duty1. Customs Act, 1962

2. Customs Tariff Act, 1975

A duty imposed by the Central Government on goods imported into India. In case of exports, only very few products are liable to customs duty.

Basic General Rate: 10% + Additional duty of customs (CVD) equivalent to the excise duty levied on like goods produced in India @ 12.5% + Special additional duty of customs @ 4%

Education Cess @ 2% and Secondary and Higher Education Cess @ 1% are also leviable on customs duty

Central Value Added Tax (CENVAT)-commonly known as excise duty1. Central Excise Act, 1944

2. Central Excise Tariff Act, 1985

A tax on the manufacture or production of goods in India imposed by the Central Government.

Basic General rate: 12.5%

Service TaxFinance Act, 1994A tax imposed by the Central Government on the services (except the services covered in the negative list of services)

Basic General Rate: 14%

Swachh Bharat Cess @ 0.5% is also leviable on the value of taxable service. Further, w.e.f. June 1, 2016, Krishi Kalyan Cess @ 0.5% will also be leviable on the value of taxable service.

Central Sales TaxCentral Sales Tax Act, 1956A tax on the inter-State sales of goods imposed by the Central Government but appropriated by the originating State.

Rate: 2% (on submission of Form C by buyer)

State-Level Value Added TaxVAT Acts of respective State GovernmentsA tax on the Intra-State sales/purchases of goods, imposed by the State Governments.

Rate generally at 5% and 12.5% /13.5%

Entry TaxState specific legislationsA tax levied by the State Governments on entry of goods into the State for sale, consumption or use.

Rate varies from State to State

Local levies such as octroi or local area taxesSpecific provisions by State GovernmentsThese are levied by municipal or local authorities.

Rate varies from authority to authority

Besides these, there are other indirect taxes levied by State Governments like luxury tax, entertainment tax etc. Multiplicity of taxes and high rates of taxation have made the indirect tax structure quite complex in India; adversely affecting competitiveness of trade, industry and growth of economy.

Under the existing indirect tax structure, the various indirect taxes being levied are not necessarily mutually exclusive. To illustrate, when the goods are manufactured and sold both central excise duty (CENVAT) and State-Level VAT are levied. Tough CENVAT and State-Level VAT are essentially value added taxes, set off of one against the credit of another is not possible as CENVAT is a central levy and State-Level VAT is a State levy. Moreover, CENVAT is applicable only at manufacturing level and not at distribution levels. The existing sales tax regime in India is a combination of origin based (Central Sales Tax) and destination based multipoint system of taxation (State-Level VAT).

Services were taxed for the first time by the Central Government in the year 1994 by introducing the levy of service tax. Service tax is currently leviable on all the services except the services that are covered in the Negative List. Initially, however, the same was charged on select services. Service tax is also a value added tax and the credit across the service tax and the central excise duty is integrated at the central level.

GST – A cure for ills of existing indirect tax regime: A comprehensive tax structure covering goods and services like Goods and Service Tax (GST) would address these problems. Simultaneous introduction of GST at both Centre and State levels would integrate taxes on goods and services for the purpose of set-off relief and will ensure that both the cascading effects of CENVAT and service tax are removed and a continuous chain of set-off from the original producer’s point/service provider’s point upto the retailer’s level/consumer’s level is established. For such a GST, the Constitution of India needs to be amended to empower the States to levy tax on services as at present the power to levy service tax is vested only with the Centre. Similarly, Centre would be empowered to levy tax on intra-State sale of goods which at present is the exclusive power of States. Also, with the introduction of GST, burden of Central Sales Tax (CST) will be removed.

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