Indirect tax in india

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The term indirect tax has more than one meaning.

In the colloquial sense, an indirect tax (such as sales tax, a specific tax [a tax per unit], value
added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such as
a retail store) from the person who bears the ultimate economic burden of the tax (such as the
customer). The intermediary later files a tax return and forwards the tax proceeds to government
with the return. In this sense, the term indirect tax is contrasted with a direct tax which is
collected directly by government from the persons (legal or natural) on which it is imposed.
Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer
to someone else, whereas an indirect tax can be."[1]

An indirect tax may increase the price of a good so that consumers are actually paying the tax by
paying more for the products.[2] Examples would be fuel, liquor, and cigarette taxes. An excise
duty on motor cars is paid in the first instance by the manufacturer of the cars; ultimately the
manufacturer transfers the burden of this duty to the buyer of the car in form of a higher price.
Thus, an indirect tax is such which can be shifted or passed on. The degree to which the burden
of a tax is shifted determines whether a tax is primarily direct or primarily indirect. This is a
function of the relative elasticity of the supply and demand of the goods or services being taxed.
Under this definition, even income taxes may be indirect.

The term indirect tax has a different meaning for U.S. constitutional law purposes: see direct tax
and excise.

Notes

ndirect Tax
Indirect Tax or the tax that is levied on goods or services rather than on persons or
organizations are of different types in India like Excise Duty, Customs Duty, Service Tax, and
Securities Transaction Tax. In India, there are a series of Tax laws and regulations in order to
control the indirect taxation, which can be either law, made by the central government or even
can be state specific laws. As a result these taxes are an important part of the total cost. It is thus
essential to make appropriate planning for such costs.

Nearly all of the activities that are subjected to indirect taxation range from
manufacturing to those required for final consumption. Activities related to trading, imports, and
services are also included in this list. As a result Indirect Tax has an impact on all business lines.
At present the Indirect Taxes in India are under a transformation due to the changing fiscal
reforms of the Indian government. Many new acts and laws are being introduced replacing the
old laws and all related issues, which have become redundant. However, it should be
remembered that such new laws while on one hand would create new opportunities, but also at
the same time would lead to a certain extent of uncertainty and judicial proceedings.

In general, the Indirect Tax in India is a complex system of interconnecting laws and regulations,
which includes specific laws of different states. For this there are many reliable organizations in
India, which employs efficient Indirect Tax professionals to help their clients. These tax
professionals with their in-depth knowledge and wide-ranging experience offers effective
planning methods to their clients in order to help in their cost minimization. The Indirect
Taxation regime encompasses various types of taxes like Sales Tax, Service Tax, Custom and
Excise Duties, VAT and Anti-Dumping Duties, and the organizations provide services in all
these related fields.

In the recent year, the Indian government has undertaken significant reform of indirect taxation
system. This includes the initiation of a region-based and state-level VAT on goods. However, it
should be noted that as taxes still forms a barrier to inter-state trading in order to attain a secured
market for the activities related to services and goods more reform is needed. Some of the
reforms that can be introduced for a better indirect taxation system in India are -

 The serialized set of Indirect Taxes so far activated at the central and state levels should
be amalgamated and treated as a single tax.
 The integrated Indirect Tax should be neutral at all levels such that chances of
fraudulence would be minimized
 The Central Sales Tax, which obstructs easy trading between different states, is being
under the process of termination that would help to abolish the control measures on the
inter-state trade

By the year 2010 the Indian government has planned to activate a goods and services tax neutral
at all levels in order to fulfill these objectives. The government can undertake either an
introduction of a national VAT or a system, which would permit both a state VAT, or a central
VAT. Along with this if the government also can incorporate a central VAT that can be rebated,
on the trade across the boundary lines, then there would be minimum chances of fraudulence.

Definition of Income Tax

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 Taxes in India are of two types, Direct Tax and Indirect Tax.

 Direct Tax, like income tax, wealth tax, etc. are those whose burden falls directly on the
taxpayer.

 The burden of indirect taxes, like service tax, VAT, etc. can be passed on to a third party.

Income Tax is all income other than agricultural income levied and collected by the central
government and shared with the states.

According to Income Tax Act 1961, every person, who is an assessee and whose total income
exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or rates
prescribed in the finance act. Such income tax shall be paid on the total income of the previous
year in the relevant assessment year.

The total income of an individual is determined on the basis of his residential status in India.

Residence Rules

An individual is treated as resident in a year if present in India

I. for 182 days during the year or

II. for 60 days during the year and 365 days during the preceding four years. Individuals fulfilling neither of
these conditions are nonresidents. (The rules are slightly more liberal for Indian citizens residing abroad or
leaving India for employment abroad.)

A resident who was not present in India for 730 days during the preceding seven years or who
was nonresident in nine out of ten preceding yeas I treated as not ordinarily resident. In effect, a
newcomer to India remains not ordinarily resident.

For tax purposes, an individual may be resident, nonresident or not ordinarily resident.

Non-Residents and Non-Resident Indians

Residents are on worldwide income. Nonresidents are taxed only on income that is received in
India or arises or is deemed to arise in India. A person not ordinarily resident is taxed like a
nonresident but is also liable to tax on income accruing abroad if it is from a business controlled
in or a profession set up in India.

Capital gains on transfer of assets acquired in foreign exchange is not taxable in certain cases.

Non-resident Indians are not required to file a tax return if their income consists of only interest
and dividends, provided taxes due on such income are deducted at source.

It is possible for non-resident Indians to avail of these special provisions even after becoming
residents by following certain procedures laid down by the Income Tax act.

Taxability of individuals is summarised in the table below

Status Indian Income Foreign Income

Resident and ordinarily resident Taxable Taxable
Resident but not ordinary resident Taxable Not Taxable
Non-Resident Taxable Not Taxable

Indirect tax
Charge levied by the State on consumption, expenditure, privilege, or right but not on income or
property. Customs duties levied on imports, excise duties on production, sales tax or value added
tax (VAT) at some stage in production-distribution process, are examples of indirect taxes
because they are not levied directly on the income of the consumer or earner. Since they are less
obvious than income tax (because they don't show up on the wage slip) politicians are tempted to
increase them to generate more state revenue. Also called consumption taxes, they are regressive
measures because they are not based on the ability to pay principle.

Indirect Tax System India

Indirect Taxes Pre Reforms

The indirect tax structure was extremely
irrational between the reforms. The Constitution gives the permission to levy a multitude of
indirect taxes. But the most important ones are customs and excise duties charged by the Central
government and sales tax excepting inter state sales tax to be charged by the state government.
The indirect taxes levied by the centre like customs, excise and central sales tax and the major
indirect taxes levied by the states and civic bodies like passenger and goods tax, electricity duty
and octroi when taken together did not present a rational system.

Indirect Taxes Post Reforms

 Even post reforms, the indirect tax regime in India is still in the early stages of growth.
Both the Central and State governments charge a multitude of indirect taxes. The central
government charges tax on goods at the point of import (Customs duty), manufacture
(Excise duty), inter state sales (Central sales tax or CST) and on provision of services
(Service tax).
 The state governments charge tax on goods sold within the state (Sales tax/Value Added
Tax or VAT), and on the goods that enter the state (Entry tax).
  In the present scenario corporate would have to analyze the tax cost involved in a
transaction, have enough backup documentation to support their tax positions and keep
looking for ways for tax maximization.

India Budget 2008

Indirect Taxes
As per the Ministry Of Finance there has been significant development in planning for
introducing the goods and services tax (GST) from April 1 2010.As a first step the rate of central
sales tax (CST) is under proposal to be decreased to 2 per cent from April1 2008.The general rate
of central value added tax (CENVAT) has been decreased from 16 per cent to 14 per cent across
all goods