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Direct and Indirect Taxes

What is GST?

GST stands for Goods and Services Tax, which is a value-added tax levied on the supply of goods and services in India. It was introduced on July 1, 2017, and replaced several indirect taxes that were previously levied by the central and state governments, such as excise duty, service tax, VAT, and others. GST is a comprehensive tax that is levied on every stage of the supply chain, from manufacturing to consumption. It is based on the principle of input tax credit, which allows businesses to claim credit for taxes paid on inputs used in the production of goods or services. GST aims to simplify the tax structure, reduce cascading effects, promote a common national market, and improve tax administration. It eliminates multiple indirect taxes and streamlines the taxation system. 

Direct Taxes:

Direct taxes are levied directly on individuals and organizations based on their income, profits, or gains. These taxes are paid directly by the taxpayer to the government. In India, the primary direct taxes are as follows:

Income Tax: Income tax is the tax imposed on the income earned by individuals, Hindu Undivided Families (HUFs), companies, and other entities. It is calculated based on the income slab rates applicable to different categories of taxpayers. The income tax system in India follows a progressive structure, where higher income earners are subject to higher tax rates.

Corporate Tax: Corporate tax is levied on the profits earned by domestic companies, foreign companies, and corporations operating in India. The tax rate varies based on factors such as the type of company, turnover, and other specific provisions.

Capital Gains Tax: Capital gains tax is applicable when individuals or businesses make a profit from the sale of assets, such as property, stocks, or mutual funds. The tax rate for capital gains depends on the holding period of the asset and whether it is considered a short-term or long-term capital gain.

Securities Transaction Tax (STT): STT is a tax levied on the purchase or sale of securities, including stocks, derivatives, and equity-oriented mutual funds, traded in recognized stock exchanges in India.

Indirect Taxes:

Indirect taxes, as the name suggests, are levied indirectly on the consumption, production, or sale of goods and services. These taxes are not directly borne by the taxpayer but are passed on to the end consumer as part of the product/service cost. In India, the major types of indirect taxes include:

Goods and Services Tax (GST): GST is a comprehensive indirect tax levied on the supply of goods and services at each stage of the supply chain, from manufacturing to consumption. It has replaced multiple indirect taxes such as central excise duty, service tax, value-added tax (VAT), and more. GST is categorized into Central GST (CGST), State GST (SGST), Integrated GST (IGST), and Union Territory GST (UTGST).

Customs Duty: Customs duty is imposed on goods imported into India and is regulated by the Customs Act. It includes basic customs duty, additional customs duty (countervailing duty), and special additional duty. The rates of customs duty vary depending on the nature of the goods and the country of origin.

Excise Duty: Excise duty is levied on the production or manufacture of goods within the country. It is imposed on goods like tobacco, petroleum products, alcoholic beverages, and certain luxury items. Excise duty rates may vary based on the specific goods and their classification.

Service Tax: Service tax was replaced by GST; however, it is still applicable to specific services that are not covered under GST. Service tax is levied on various services provided by businesses, professionals, and service providers.

Key Features and Importance:

Revenue Generation: Direct and indirect taxes play a vital role in generating revenue for the government to fund public expenditure, infrastructure development, social welfare programs, and other essential services.

Redistribution of Wealth: Direct taxes, especially income tax, contribute to the redistribution of wealth by taxing higher-income individuals and entities at a proportionately higher rate, aiming to reduce income

Financial Decision-Making

Accounting provides essential financial information that helps businesses make informed decisions.

Stakeholder Communication

Accounting facilitates communication with stakeholders such as investors, creditors, employees, and government authorities.

Compliance and Legal Requirements

Accounting ensures compliance with financial regulations and legal requirements.

Performance Evaluation

Accounting enables the evaluation of a company's financial performance over time.

Resource Allocation

Accounting provides valuable insights into the allocation of resources within a company.

Historical Recordkeeping

Accounting maintains a historical record of financial transactions, which is crucial for future reference


GST compliance involves timely filing of GST returns, maintaining proper records of transactions

GST Rates

GST rates are categorized into different slabs: 0%, 5%, 12%, 18%, and 28%. The rates vary depending on the nature of goods

Ask Us About Direct and Indirect Taxes

It is important to note that specific details and regulations regarding GST may vary between countries. Therefore, it is advisable to refer to the applicable GST laws and guidelines in the relevant jurisdiction for comprehensive and up-to-date information. GST is a comprehensive, multi-stage tax that is levied on every value addition within the supply chain. It is divided into Central GST (CGST) levied by the central government and State GST (SGST) levied by the state governments. Integrated GST (IGST) is applicable to inter-state supplies. GST applies to the supply of goods or services made for consideration in the course of business. It is applicable to both goods and services, except for items exempted or outside the purview of GST


GST is levied at each stage of the supply chain, from the manufacturer to the consumer. Businesses collect GST from customers and remit it to the government. They can claim input tax credits on GST paid on their purchases, reducing the overall tax liability.

The main types of GST are Central GST (CGST), State GST (SGST), and Integrated GST (IGST). CGST and SGST are levied by the central and state governments, respectively, on intra-state supplies. IGST is applicable to inter-state supplies.

Businesses with an annual turnover above the specified threshold (which may vary by country) are required to register for GST. However, certain businesses may be exempted or eligible for the composition scheme.

Input tax credit allows businesses to claim the GST paid on their purchases as a credit against their GST liability. It prevents the cascading effect of taxes and reduces the overall tax burden.