What is Indirect Tax? Understand the Types, Features, and Filing Here

An indirect tax is a type of tax usually applied to goods and services, where the burden of tax can be passed on to another entity or individual to another. So, in the case of indirect tax, the incidence and impact of taxation does not occur on the same entity.

For instance, indirect taxes are initially paid by manufacturers or suppliers to the government, who then pass this tax burden on to the end-user of a good or service. In contrast to this, income tax is the clearest example of a direct tax where the person earning an income pays the applicable tax directly to the government.

Indirect taxes in India as well as the rest of the world are levied on the import, sale, and manufacture of goods as well as the purchase of goods and services by individuals and corporations. In India some indirect taxes are payable to the Central Government like GST, while others like VAT (Value Added Tax) are payable to the applicable state governments.

There are many different types of indirect taxes in India. While the introduction of GST (Goods and Services Tax) has led to a number of indirect taxes being subsumed, many are still payable to central and state tax authorities. Key examples of taxes that are part of the indirect taxation regime include:

The introduction of GST in India led to significant change in the taxation system in India. The “One India-One Tax” regime has led to a number of indirect taxes being subsumed i.e. replaced by the Goods and Services Tax. Some examples of indirect taxes that have been discontinued to a large extent are follows:

Self-employed business and professional companies or entities need to clear the minimum percentage of advance tax liabilities as per the due dates mentioned below:

• At least 30 per cent of the tax liability by the 15th of September of a financial year
• At least 60 per cent of the tax liability by the 15th of December of a financial year
• 100 per cent of the tax liability by the 15th of March of a financial year

Failure to make payments in a timely manner as per the above advance tax payment schedule can lead to substantial penalties for the taxpayer. The possible penalties are discussed in the next section.

Just like direct taxes, the indirect tax regime also offers some key benefits to taxpayers as well as the government. Here are some of the most important advantages of indirect taxes:

•  High level of convenience: Indirect taxes do not burden the initial taxpayer as they can be transferred to a different entity or end-user at a later date. So only the entity who consumes the good/service actually pays the tax. Additionally, state government authorities find it convenient to levy indirect type of taxes because it is collected directly and helps save a lot of time and effort.
•  Easy collection: Indirect taxes are easy to collect as compared to direct taxes. Since indirect taxes are easy to collect at the time a purchase is made or goods are transported, the authorities have to put in less effort for tax collection.

•  Liability of taxes: The seller or the service provider pays indirect taxes to the government and the liability is ultimately transferred to the customer.
•  Nature of indirect taxes: Indirect taxes can initially be considered to be regressive in nature. Now, thanks to the goods and services tax, these taxes are now quite progressive.
•  Investment and savings: Indirect taxes are usually growth-oriented, keeping in mind the fact that these types of taxes encourage individuals to save and invest well.
•  Evasion: It is hard to evade indirect taxes because they are directly implemented through the transport or sale of products or when services are provided.

Indirect taxes most used and imposed by the government for revenue generation. Indirect taxes are nothing but taxes that are levied equally on all taxpayers, irrespective of their income. In most cases, indirect taxes are directed at consumption, so individuals who consume goods and services more have to pay more tax, while those with lower consumption end up paying less indirect tax.