Indirect taxation system in India includes various types of taxes like sales tax, value added tax (VAT), excise duty, custom duties, etc. In the colloquial sense, an indirect tax can be explained as a form of tax, wherein the ultimate bearer (tax-payer) doesn’t directly make the tax payment. In such cases, taxes are collected by an intermediary. For example, when a customer purchases a particular commodity, he is the ultimate tax-payer, but the retail store acts as the intermediary. Later, the intermediary documents a tax return and forwards the tax proceeds to government, along with the return.
Hence, unlike direct taxes where the government directly imposes and collects taxes from the person (juristic or natural), indirect taxes are indirectly collected by a third party. Sometimes indirect taxes are also considered as those taxes where there exists a scope of shifting responsibilities. In such cases, the initial tax payment is made by a particular individual who later shifts the burden of tax payment to a different individual. For example, a soft drink producer who produces soft drink pays indirect tax in the form of excise duty. Later, he sells soft drinks and shifts his tax burden to the buyers who purchase them.
In India, manufacturing, final consumption, trading and exports; everything falls within the ambit of indirect taxes. Thus, government has been introducing many new policies and programmes to augment the collection of indirect taxes in the country. In line with the Budget 2008, the peak basic customs duty and service tax rates of India remained unchanged at 10% and 12%, respectively. The general excise duty rate however saw a reduction from 16% to 14%. The threshold limit for small service providers saw an increase from Rs 8 lakh to Rs 10 lakh and the rate for works contracts has been increased from 2% to 4%.
Under Service Tax; information technology, software services, stock and commodity exchange services and supply of goods (without transferring right to possession) and effective control have been declared as taxable. Moreover, in case of custom duties, there have been minimal changes in rates of various products like medicines, set-top boxes (only specified parts) and some parts of IT hardware.
