Meaning of Indirect Tax

Unlike a direct tax, whose impact and incidence fall on the same person, an indirect tax is a tax whose impact (the person who initially pays it to the government) falls on one person, while its incidence (the ultimate burden) can be shifted to another person — typically the final consumer, through the price of a good or service.

A trader who pays tax on goods purchased for resale usually adds that tax into the selling price charged to the customer — so while the trader is legally responsible for depositing the tax with the government, it is the final consumer who actually bears its economic burden. This is the defining feature of every indirect tax, whether it is a tax on the sale of goods, the provision of services, or the import of goods across the border.

This chapter covers the pre-Goods and Services Tax (GST) indirect tax structure briefly, before covering GST itself in depth — GST is now, since 1st July 2017, the principal indirect tax on the supply of goods and services within India. This chapter's coverage of GST law is central legislation (the CGST Act, 2017, SGST Acts of each state, and the IGST Act, 2017) studied identically across every Indian commerce syllabus nationally, whichever board a student sits under.