Features of Indirect Tax Explained

The function of indirect taxation in India could be very important in terms of revenue from sales and the cost of goods and services. Direct taxes are imposed on income, while indirect taxes are included in the cost of products and services. Just like GST, other indirect taxes also contribute significantly to the government revenue. In FY23, the total indirect taxes stood at INR 13.94 lakh crore, a 7.73% increase from INR 12.94 lakh crore in FY22.

What is Indirect Tax?

Indirect tax is a form of tax that is not levied on the profits of businesses but is imposed on on the making and supply transactions on goods and services. This tax is collected from intermediaries along a supply chain (such as manufacturers, wholesalers, and retailers) and the consumer who finally consumes the product for themselves must bear the tax burden.

What comprises indirect taxation in India?

There are many types of taxes covered under indirect taxes in India, which include:

• Goods and Services Tax (GST): A tax levied on the production and intake of services and products and particular gadgets and offerings.
• Excise Duty: Imposed on the manufacture of merchandise within the country.
• Customs Duty: Levied on goods imported into the country.
• Value Added Tax (VAT): A state tax on the sale of goods.
• Service Tax: Relates to goods supplied (now subsumed under GST).
• Central Sales Tax (CST): A goods tax levied by the central government but collected by the state government.

Key Features of Indirect Taxes

The following are the main features of indirect taxes:

1. Transferability

Indirect tax is transferable, thus it is passed on from one party to another until it reaches the consumer.

2. Tax on consumption

These are the taxes that are based wholly on consumption since they do not directly influence income, but rather the price of goods and services. The collection of GST in April 2024 was INR 2.10 lakh crore, which was the record high ever made.

3. Broad tax base

As indicated earlier, indirect taxes are levied on a wide spectrum of commodities and services, which has the effect of covering a wide client base and a high capacity for tax collection.

4. Inflationary impact

All these taxes may cause charges to rise, and this may have a role to play in the rate of inflation.

5. Ease of collection

This is why indirect taxes are easier for the government to recover as they are incorporated in the cost of goods and services.

6. Cascading effect of taxes

Most of the indirect taxes can lead to a cascading effect, where a tax is levied on a product at every stage of production. GST has been able to remove this cascading effect.

7. Regressive nature

Indirect taxes are considered regressive because they take a large percentage of income from low-income groups compared to high-income groups, as everyone pays the same rate regardless of their ability to pay.

Impact of indirect taxes

These taxes also affect the economy of a nation by changing intake patterns, charges, and inflation charges. It may well affect the cost of living and the purchasing power of consumers. It also regulates prices and competition strategies for corporations regarding indirect taxes. Furthermore, these taxes are necessary for authorities' income, and provide the funds to invest in public utilities and amenities.

Conclusion

It is essential to understand how these taxes affect our monetary system and each day lives to understand the functions of indirect tax. Indirect taxes, with their giant base and ease of series, play a pivotal position in the financial policy. Understanding them may assist the consumers to make informed decisions on their financial transactions and easily identify the real charges in their purchases.