Nikita Jain 088528 TAXATION: ASSIGNMENT -- SEMESTER V-INDIRECT TAXES General Introduction: Indirect taxes are the charges that are levied on goods and services. They are of different types in India like Excise Duty, Customs Duty, Service Tax, and Securities Transaction Tax. There are a series of Tax laws and regulations in order to control the indirect taxation, which can be either national 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. 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 In the following pages is a brief about three of the main kinds of Indirect taxes in India: 1.Sales tax 2.Customs Duty 3.Excise Duty
SALES TAX What Sales Tax is and why it is paid: Sales Tax or the tax on consumption is liable for payment during the purchase for certain goods and services as they form a part of national GDP. It means every seller of goods and service provider charges the tax after availing the input tax credit. It is the form of collecting sales tax under which tax is collected in each stage on the value added of the goods. In practice, the dealer charges the tax on the full price of the goods, sold to the consumer and at every end of the tax period reduces the tax collected on sale and tax charged to him by the dealers from whom he purchased the goods and deposits such amount of tax in government treasury. The question of whether they are generally progressive or regressive is a subject of much current debate. People with higher incomes spend a lower proportion of them, so a flat-rate sales tax will tend to be regressive. It is therefore common to exempt food, utilities and other necessities from sales taxes, since poor people spend a higher proportion of their incomes on these commodities, so such exemptions make the tax more progressive. This is the classic "You pay for what you spend" tax, as only those who spend money on nonexempt (i.e. luxury) items pay the tax. Generally, the sale of imported items as well as sale by way of export is not included in the range of commodities that require payment of sales tax. Moreover, luxury items (such as cosmetics) are levied higher sales tax rates. Who collects Sales Tax: Sales tax can be levied either by the Central or State Government, Central Sales tax department. Also, 4 per cent tax is generally levied on all inter-State sales. It is imposed under Central Government (Central Sales Tax) and the State Government (Sales Tax) Legislation. State sales taxes - that apply on sales made within a State - have rates that range from 4 to 15 per cent. Sales tax is also charged on works contracts in most States and the value of contracts subject to tax and the tax rate vary from State to State. However,
exports and services are exempt from sales tax. Sales tax is levied on the seller who recovers it from the customer at the time of sale. Normally, each state has its own sales tax act and levies the tax at various rates. Apart from sales tax, certain states also impose extra charges such as works contracts tax,
turnover tax & purchaser tax. Thus, sales tax plays a major role in acting as a major generator of revenue for the various State Governments. Under the sales tax which is an indirect form of tax, it is the responsibility of seller of the commodity to collect or recover the tax from the purchaser. The Central Sales Tax (CST) Act that comes under the direction of Central Government takes into consideration all the interstate sales of commodities. However, most of the states in India, from April 01, 2005, have supplemented the sales tax with the new Value Added Tax (VAT).