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Collected by one entity in the supply chain, such as a manufacturer or retailer, and paid to the government
Indirect tax is a type of tax that is levied on goods and services rather than on income or profits. Unlike direct taxes, which are paid directly by individuals or businesses to the government (such as income tax), indirect taxes are collected by intermediaries, such as manufacturers or retailers, who then pass the tax burden onto the end consumers. Common examples of indirect taxes include Goods and Services Tax (GST), sales tax, excise duty, and value-added tax (VAT). These taxes are typically included in the price of goods and services, making them less visible to consumers. Indirect taxes play a significant role in a country’s economy, contributing to government revenue and influencing consumer behavior and spending patterns. They can also vary based on the nature of goods or services and are often used as a tool for economic policy, such as discouraging the consumption of certain products or promoting local industries.
Indirect taxes are applied to a wide range of goods and services, ensuring a broader tax base. This helps increase government revenue by taxing consumption rather than income.
Indirect taxes are typically easier to collect than direct taxes. Businesses collect these taxes at the point of sale, reducing administrative costs for the government and ensuring a steady flow of revenue.
Since indirect taxes are included in the price of goods and services, they are less prone to evasion compared to direct taxes. Consumers cannot easily avoid paying these taxes as they are included in the purchase price.
Businesses are incentivized to comply with indirect tax regulations, as non-compliance can lead to penalties and loss of business reputation. This encourages a culture of tax compliance among businesses.
Indirect taxes can provide a stable source of revenue for governments, as they are linked to consumption levels. During economic growth, consumption increases, leading to higher tax revenues.
Governments can adjust indirect tax rates more easily than direct tax rates. This flexibility allows for quick responses to economic changes or fiscal needs, helping to manage inflation or stimulate economic growth.
Businesses must meet the following eligibility criteria to register for GST in India:
Aggregate Turnover: Must exceed ₹20 lakhs (₹10 lakhs for special category states) in the previous financial year.
Inter-State Supply: Businesses making inter-state supplies must register, regardless of turnover.
E-Commerce Operators: All e-commerce platforms facilitating sales must register for GST.
Compulsory Registration: Certain businesses, such as casual taxable persons and non-resident taxable persons, are mandated to register.
Professional Services: Individuals providing professional services with turnover above the prescribed limit must register.
Composition Scheme: Small businesses with turnover up to ₹1.5 crores (₹75 lakhs for special category states) can opt for the composition scheme but must register.
Input Service Distributors: Businesses distributing input tax credits must register as Input Service Distributors (ISD).
Manufacturers and Traders: Those with turnover exceeding the limits must register to collect GST.
Liability to Pay Tax: Individuals or businesses liable to pay GST (including under reverse charge) must register.
Voluntary Registration: Businesses below the threshold can voluntarily register to avail input tax credits and improve credibility.
To ensure a smooth GST registration process in India, follow this checklist:
Eligibility Confirmation: Verify that your business meets the eligibility criteria for GST registration.
Document Collection: Gather necessary documents, including:
Visit the GST Portal: Go to gst.gov.in to initiate registration.
Start Registration: Click on “Register Now” and fill in your PAN, mobile number, and email to receive a Temporary Reference Number (TRN).
Complete Application: Log in with your TRN and fill out Form GST REG-01 with detailed business information.
Upload Documents: Attach all required supporting documents as specified.
To register for GST in India, the following documents are required
PAN Card: Permanent Account Number of the business or individual.
Aadhaar Card: Aadhaar card of the individual or authorized signatory for verification.
Proof of Business Registration:
Address Proof: Valid documents like utility bills or rental agreements showing the business address.
Bank Account Details: A copy of a bank statement or a cancelled cheque.
Photographs: Recent passport-sized photographs of the authorized signatory.
Digital Signature Certificate (DSC): Required for companies and LLPs, obtained from a licensed certifying authority.
Letter of Authorization: If applicable, to authorize an individual to act on behalf of the business.
Other Relevant Documents: Additional documents may be needed based on the business type, such as agreements for e-commerce operators or certificates for professionals.
Here are the main Types of Indirect Taxes in India:
A comprehensive tax on the supply of goods and services, merging several older taxes like excise duty and sales tax. GST is levied at every stage of the supply chain and is categorized into CGST, SGST, and IGST.
A tax imposed on the sale of goods and services, collected at the point of purchase. It is typically levied by state governments and varies by location and product type.
A tax on the manufacture or production of goods within a country. It is typically levied on products such as alcohol, tobacco, and petroleum, and can be either specific (based on quantity) or ad valorem (based on value).
A tax on the import and export of goods across international borders. It is imposed by the central government and varies based on the type of goods and their country of origin.
Previously levied on certain services provided by service providers, which was merged into GST. It was imposed on specific services before the implementation of GST in July 2017.
Levied by the central government on goods manufactured in India, this tax is charged on products produced in factories. It primarily applies to goods like petroleum products and tobacco.
Here are the key characteristics of indirect taxes:
Levied on Goods and Services: Indirect taxes are imposed on the sale of goods and services rather than on income or profits.
Burden on Consumers: The economic burden is passed on to consumers, making these taxes less visible as they are included in the purchase price.
Ease of Collection: Indirect taxes are generally easier to collect, as businesses handle the collection at the point of sale.
Broad Tax Base: They apply to a wide range of goods and services, helping to generate revenue from diverse sources.
Less Evasion: These taxes are less susceptible to evasion since they are embedded in the product price.
Registering for Goods and Services Tax (GST) in India is a straightforward process. Here’s a detailed guide:
Check Eligibility: Ensure your business meets the criteria for GST registration, such as turnover limits or inter-state supplies.
Prepare Required Documents: Gather necessary documents, including:
Visit the GST Portal: Go to gst.gov.in and click on “Register Now.”
Initiate Registration: Enter your PAN, mobile number, and email to receive a Temporary Reference Number (TRN).
Complete Application (Part B): Log in using the TRN and fill out Form GST REG-01 with detailed business information.
Upload Documents: Attach the required documents as specified on the portal.
Review and Submit: Check all information for accuracy and submit the application.
Verification: Wait for GST authorities to verify your application and respond to any queries.
Receive GSTIN: Upon approval, you will receive your GST Identification Number (GSTIN) via email and SMS, along with a downloadable registration certificate.
Maintain Compliance: Ensure timely filing of GST returns and keep accurate records of transactions.
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