Types of indirect taxes in India: GST, Service tax, excise duty, stamp duty

Indirect taxes are those taxes that are levied on the manufacture, sale, import and purchases of goods and services, a few examples of indirect taxes being excise duty and customs duty.

India has seven types of indirect taxes, which were passed on to the consumer by the manufacturers and service providers before being subsumed by the Goods and Services Tax (GST). However, consumers still effectively pay these, but now as GST.

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Types of indirect taxes

1. Service tax

The service tax is levied by the central government on an organisation for the services it provides.

2. Excise duty

Excise duty is levied on all manufactured products, which the manufacturer subsequently recoups from the consumer.

3. Value-added tax

Value-added tax or VAT is levied on moveable products sold directly to consumers. It comprises two taxes - the central sales tax, payable to the central government, and the state central sales tax, payable to the government of the state where the manufacturer is located.

4. Stamp duty

Stamp duty is levied on the transfer of any immovable property and is payable to the government of the state where the property is located. It is also levied on all legal documents.

5. Customs duty

Customs duty is the tax levied on goods imported into the country, though sometimes, it is also levied on export items.

6. Entertainment tax

Levied by the state governments on any products or transactions related to entertainment, the entertainment tax is applicable on the sale of video games and tickets for movie shows, sports events, amusement parks, etc.

7. Securities transaction tax

The securities transaction tax or STT is levied through the stock exchanges on securities trade.

​Related: Understanding The Differences Between Direct And Indirect Taxes

Features of indirect taxes

Indirect taxes have a few key features:

• Transfers tax liability

The service provider or seller pays indirect taxes to the government but transfers the liability to consumers.

• Fosters growth

Indirect taxes are growth-oriented as they include people untouched by income-tax obligations.

• Can’t be evaded

Indirect taxes cannot be evaded as they are collected directly through products and services.

Advantages of indirect taxes

Indirect taxes are not for income tax taxpayers, as it is only payable on making a purchase - thus only as a consumer.

But from the government’s point of view, there are several advantages of indirect taxes, as listed below:

• Convenience: First, it is convenient for government officials to collect the tax directly from the stores and factories, which saves on time and effort.
• Ease of collection: Tax collection at the time of purchases also makes indirect taxes easier to collect than direct taxes.
• Equitable collection: The practice of tax collection at the time of purchases means those who are exempt from income tax - i.e. they earn less than Rs 2.5 lakh a year - also contribute to the government exchequer, and therefore, towards economic growth.
• Equitable contributions: Since indirect taxes are directly related to the costs of products and services, basic necessities have only minimal tax rates, as opposed to luxury items. This ensures equitable contributions.

Also Read: What Is Pink Tax And Are You Paying It?