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Types of Indirect Taxes in India Research Team | Posted On Thursday, January 16,2020, 05:44 PM

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Types of Indirect Taxes in India



What are Indirect Taxes?

As the name suggests, indirect taxes are those that are not directly levied on the taxpayers but is indirectly levied on the individuals in the form of the expenses incurred by them. These taxes are basically imposed on manufacturers and suppliers who then pass it on to the customers. For example, the excise tax applicable on purchase of alcohol and cigarettes is a form of indirect tax.  Some other forms of indirect tax are VAT and service tax.

An indirect tax increases the price of a product or services and is thus transferred to each member of the society irrespective of their income.

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See Also: How To Calculate Income Tax For Salaried Person?

Types of Indirect Taxes in India:

Here are some of the most common types of indirect taxes in India:

-Excise Duty:

Excise duty is one of the indirect taxes that are levied on all manufactured goods within the nation. It is a tax that is levied by the government, paid by the manufacturer and then manufacturers pass it to the customers to recover the same. Excise duty is also known as central value-added tax and is different from customs duty. The central government implies excise duty and the tax levied are governed through the provisions of the Central Excise Act, 1944.

-State VAT:

This category of indirect taxes is levied by the state government. The state government implies VAT on the sale of movable products within the nation. A VAT is charged at every stage of production and distribution channel and thus each instance of value additional attracts VAT.

-Custom Duty:

Customs duty is imposed by the central on the goods imported into India from other nations. In some cases, customs duty is also levied on the goods exported from India.

In India, the regulation and implication of customs duty is carried out through the provisions included in the Customs Duty Act, 1962. It mentions rules for levy and collection of taxes on imports and exports, import/export procedure, prohibition on importation and exportation of goods, penalty and offences.

See Also: How To Calculate Your Taxable Income?

-Securities Transaction Tax:

A Securities transaction tax is a category indirect tax levied at the time of buying or selling of securities through any stock exchange in India. The tax was introduced in the 2004 Budget and came to effect from 1st April 2004.

It is applicable on all types of securities like mutual funds, equities as well as on options and futures. The SST was introduced as a measure to lower short-term capital gains tax and to make long-term capital gains exempt from the levy of taxes.

-Dividend Distribution Tax:

Any domestic company which declares the payment of dividends to investors is required to pay DDT at 15% on the total amount of dividend declared to be paid. The provisions related to DDT are governed by section 1150. DDT MUST be paid within 14 days of declaration, distribution or payment of dividend (whichever is the earlier).

 In case of non-payment of DDT within 14 days, the company would be liable to pay by way of interest at the rate of 1% of the DDT starting from the date following the date on which the DDT payment was announced.

-Stamp Duty:

Stamp duty is a category of indirect taxes levied by the state government. It is mainly imposed on the transfer of immovable property located within the state. The stamp duty charges vary from one state to another and are sometimes imposed by the government on legal documents.

-Anti-Dumping Duty:

Dumping refers to the exporting of goods in the international market at a price less than the fair market price. Dumping makes the market more competitive for domestic traders and manufacturers. So, to counteract this dumping, the Government of India has formulated certain guidelines and policies. Imposing duty on imported goods is also one of them and is known as Anti-Dumping Duty.

-Goods and Service Tax:

The GST Act was passed by the central government on 29th March 2019 and is a comprehensive tax charged on goods at each stage of value addition. The GST is a highly regarded tax system in the country and its importance lies in the fact that it covers various forms of indirect taxes under itself. GST has brought about a change in the country’s economy as it lessens the cascading of tax duties which is the reason for overall market inflation.

Due to the presence of a large number of indirect taxes in India, consumers often end up paying higher prices for goods and services. The Government is thus proposing to combine various taxes under GST to streamline the process of taxation. Merging different taxes under GST is expected to improve the governance and reduce complexities existing in the system.

See Also: HRA Tax Calculation

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