An indirect tax is a type of tax that is not paid directly by the person who bears its burden, but instead collected through an intermediary (like a shopkeeper, manufacturer, or service provider).
The consumer pays the tax when buying goods or services.
The seller collects this tax and deposits it with the government.
So, the burden of tax is shifted from producers/sellers to end consumers.
This is why it’s called “indirect”—the person paying to the government is not the same person who bears the tax.
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Types of Indirect Taxes in India (Current Structure)
Since 1st July 2017, India has adopted the Goods and Services Tax (GST) regime, which replaced many indirect taxes like excise duty, VAT, service tax, octroi, etc.
1. Goods and Services Tax (GST)
The umbrella indirect tax system. It has three main types:
CGST (Central GST): Collected by the Central Government on intra-state supply (within the same state).
SGST (State GST): Collected by the State Government on intra-state supply.
IGST (Integrated GST): Collected by the Central Government on inter-state supply (between two different states) and imports.
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2. Customs Duty
Levied on goods imported into India or exported outside India.
Types include Basic Customs Duty, Countervailing Duty, Anti-dumping Duty, etc.
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3. Excise Duty (now mostly merged in GST, except on a few products like liquor, petrol, diesel, tobacco)
Earlier levied on manufacturing of goods in India.
Now, only limited excise duty applies on petroleum products and alcohol (since they are kept outside GST).
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4. Other Indirect Levies (State-specific)
Stamp duty on property registration.
Entertainment tax on cinema/theatres (now subsumed in GST except local bodies may levy).
Electricity duty.
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Characteristics of Indirect Tax
1. Tax burden is shifted from seller to consumer.
2. Applied on consumption, not directly on income or wealth.
3. Broader base—covers almost every citizen since everyone buys goods/services.
4. Regressive in nature (same rate applies to rich and poor).
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Example of Indirect Tax (GST in Action)
Suppose Mr. Raj buys a refrigerator from a shop in Bhopal (Madhya Pradesh).
Base Price of Refrigerator: ₹30,000
GST Rate: 18% (intra-state purchase, so CGST + SGST applies)
1. CGST (9%) = ₹2,700
2. SGST (9%) = ₹2,700
3. Total Tax = ₹5,400
4. Final Price Paid by Raj = ₹30,000 + ₹5,400 = ₹35,400
Here:
Raj (the consumer) bears the tax burden.
The shopkeeper collects ₹5,400 from Raj and deposits it with the government (split between Centre and State).
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In simple terms: Indirect tax (like GST) is hidden in the price of goods/services we use every day, making it unavoidable for consumers.
