Page 3 - Ch1_Introduction

01. Introduction to Indirect Tax

CCP 01.01.01.00
Differentiate between Direct and Indirect taxes.
Answer :
Particulars Direct Taxes Indirect Taxes
Levied on It is levied on income earned by activities It is levied on product or services
conducted.

Incidence It is borne directly by person paying tax It is shifted to other person as the person
of tax to Government. paying tax to Government collects the same

from ultimate consumer.
It is progressive in nature i.e. high rate of It is regressive in nature as all the consumers
Nature
taxes for people with higher ability to pay. equally bear the burden, irrespective of their
ability to pay.
When it is It is paid after the income reaches in the It is paid before goods/services reaches the
paid? hands of tax payer. tax payer.

Collection Tax collection is difficult and it is on yearly Tax collection is relatively easier and collected
basis. at the time of sale /purchase of goods or
rendering of services.

Examples Eg. Income tax, wealth tax, etc. Eg.Custom Duty, GST, Excise Duty, Service
tax, Sales tax, etc.

CCP 01.01.02.00

Explain the salient features of indirect taxes.
Answer :
S.No. Feature Explanation

1 An important & major Indirect tax is major source of revenue for all Govts. in the world.
source of revenue In India, it contributes more than 50% of the total tax revenues of
Central & State Governments.
2 Tax on commodities & It is levied on commodities at the time of supply, manufacture or
services purchase or sale or import/export thereof. Hence, it is also known

as commodity taxation. It is also levied on provision of services.
3 Shifting of burden Indirect tax paid by supplier is recovered from buyer by including the
tax in the cost of commodity/service & shifting tax burden in this way.
No perception of direct Since, Indirect tax is generally inbuilt in the price of commodity/
4
pinch service, most of the time tax payer pays the same without actually
knowing that he is paying tax to Government.

5 Inflationary Tax imposed causes an all-round price spiral. In short, indirect
taxation directly affects the prices of commodities & services &

leads to inflationary trend.
6 Wider tax base Majority of products or services are subject to indirect taxes with
low thresholds.

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