Page 10 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Unit 1: Introduction to Indirect Taxes

Notes

Notes The tax system in India mainly, is a three tier system which is based between the
Central, State Governments and the local government organizations.

Self Assessment

Fill in the blanks:
1. The indirect tax in India constitutes a group of .................................................and regulations.

2. The indirect taxes in India are enforced upon different activities including manufacturing,
.................................................and imports.
3. Indirect taxes influence all the .................................................lines in India.

4. The serialized set of ............................................so far activated at the central and state levels
should be amalgamated and treated as a single tax.
5. The ............................................. gives the permission to levy a multitude of indirect taxes.

1.4 Service Tax

Service tax is levied on services provided by the businessman, professional or any other service
provider. It is an indirect tax. Service tax was first introduced by the former Finance Minister Dr.
Manmohan Singh, in his budget of 1994-95. The then Narasimha Rao government went by the
recommendations of the Raja Chelliah Panel on tax reforms. Perhaps, it had to first ensure the
acceptance of the concept of service tax. It was initially levied on three services–telephones, non-
life insurance and stock-broking. The rate of tax was pegged at a modest of 5%. It was increased
from 5% in 1995 to 8% in 2003. It was revised to 10% with effect from September 2004. At present
the rate of service tax is 12.36%. The tax came into effect on July 1, 1994.

Task Discuss about Indirect Tax System in India.

Indirect Tax

An indirect tax is a tax collected by an intermediary (such as a retail store) from the person who
bears the ultimate economic burden of the tax (such as the customer). An indirect tax is one that
can be shifted by the taxpayer to someone else. An indirect tax may increase the price of a good
so that consumers are actually paying the tax by paying more for the products. The some
important indirect taxes imposed in India are as under:

1.5 Customs Duty

The Customs Act was formulated in 1962 to prevent illegal imports and exports of goods.
Besides, all imports are sought to be subject to a duty with a view to affording protection to
indigenous industries as well as to keep the imports to the minimum in the interests of securing
the exchange rate of Indian currency. Duties of customs are levied on goods imported or exported
from India at the rate specified under the Customs Tariff Act, 1975 as amended from time to time
or any other law for the time being in force. Under the custom laws, the various types of duties
are leviable. (1) Basic Duty: This duty is levied on imported goods under the Customs Act, 1962.
(2) Additional Duty (Countervailing Duty) (CVD): This is levied under section 3 (1) of the

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