What are Indirect taxes?
Indirect taxes are in the nature of charges levied on goods and services. Some of the significant indirect taxes include – Central Excise Duty, Customs Duty, Service Tax, Value Added Tax, Central Sales Tax, Entry tax etc.
The Indirect tax regime in India comprises of multi-layered levies at both Central as well as State government levels. The Constitution of India has in its Schedule 7 assigned the powers to levy and collect taxes under Union List (List I) as well as State List (List II). The Union government levies tax on goods at the point of import (Customs duty), manufacture (Excise duty), inter-state sales (Central sales tax or CST), and on provision of services (Service tax). The states, on the other hand, have been vested with powers to levy tax on sale of goods within the state (Sales tax/Value Added Tax or VAT), and on the entry of goods into the state (Entry tax), under the respective state laws. Since taxes are in the nature of costs for businesses, due to the nature of multi-layered levies and administration of indirect tax at both Central and State levels makes it highly complex and dynamic in nature. Further, frequent changes in the legislation/ judicial pronouncements makes compliances and analysis of business structures from an indirect tax perspective a key point for consideration.
As goods and services continue to play a significant role in different forms of businesses, it becomes important for all businesses to analyse tax costs, put in place robust documentation/ compliance mechanisms for adopted tax positions and constantly explore tax optimization opportunities.