Budget in A Minute: What is an indirect tax? How is it different from a Direct tax? Zee Business Managing Editor Anil Singhvi explains!
Indirect tax is the tax that is levied on the goods that you buy or the services that you take. It is different from the Direct tax in a way that it has no bearing on the income that you make
Previously we have told you what was a Direct Tax? Direct tax is the tax that is levied on your income. Today we will explain to you what an indirect tax is? Well, for starters, indirect tax has nothing to do with your income. Whether you have an income or don't, you will still have to pay indirect tax.
Now, you will think how is that possible? Yes, this is how indirect tax works. The moment you spend money on something, some part of the money will go from your pocket in the form of indirect tax. It will go directly to the government.
Initially, there were various types of taxes like the excise tax, service tax, VAT or value-added tax and a cess...and so on and so forth. Now the government has done away will all these taxes and brought a single tax regime across the country. This tax is the Goods and Services Tax (GST) which was implemented in 2017. GST is an indirect tax.
So, while paying for any goods or services, the final bill which will come to you will have the GST component in it.
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Whatever may be your income, the levy of GST on the items that you buy or the services that you receive will not be dependent on that. You will have to pay whatever GST is levied on that item or service irrespective of your income.
This is the basic difference between an indirect tax and direct tax.
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The tax came into effect on July 1, 2017, through the implementation of the One Hundred and First Amendment of the Constitution of India by the government. The GST replaced existing multiple taxes levied by the central and state governments. Goods and services are divided into five different tax slabs for collection of tax - 0%, 5%, 12%, 18% and 28%.
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