Central Government levies taxes on the following:

Income Tax: Tax on income of a person

Customs duties: Duties on import and export of goods
Central excise: Taxes on Manufacturing of dutiable goods
Service tax: Taxes on provision of services

State Governments can levy the following taxes:

Value Added Tax (VAT): This is tax on sale of goods. While intra-state sale of goods
are covered by the VAT Law of that state, inter-state sale of goods is covered by the
Central Sales Tax Act. Even the revenue collected under Central Sales Tax Act is done so
by the State Governments themselves and actually the Central Government has no role to
play so.
Stamp duties and Land Revenue: Since land is a matter on which only State
Governments can govern, thus the Stamp duties on transfer of immovable properties are
levied by State Governments.
State Excise on Liquor and certain agricultural goods.

Apart from the above, certain powers of taxation have been devolved in the hands of local
bodies. These local governing bodies can levy taxes on water, property, shop and establishment
charges etc.

Tax Deduction at Source (TDS)

This point is being specifically mentioned because the penalties of non-compliance are very
stringent. As per the provisions of the Indian tax laws, certain payments are covered under tax
withholding norms. Under this, the person responsible for making any payment is required to
withhold a certain specified percentage of the payment amount as taxes and deposit it with the
Government treasury. In addition, the person is required to prepare a certificate of tax deduction
and provide it to the person on whose behalf the deductions are made. Every quarter i.e. 3
months, returns have to be filed by the deductor and credit must be given to the deducted in the
returns.

The following are the areas where tax withholding is most common in the Indian scenario:

Salaries

The salaried employees of the drawing beyond the minimum taxable salary would be covered
under the tax withholding requirements and annual tax withholding returns are to be submitted
with the Revenue authorities.

Contractors
Payments made to a contractor for carrying out any work would require withholding of tax at
source from such payments, ifcertain threshold limits are crossed. Typical examples of such
payments will include:

Advertising payments
Broadcasting and telecasting payments
Office renovation payments
Vehicle hire payments
Catering payments.
Job Work
Courier

Professional Services

Payments made for professional and technical fees to Doctors, Chartered Accountants, Lawyers,
Management Consultants, Engineers, Architects and other professionals would fall under this
section and tax would be required to be withheld from their payments. Such withheld tax shall be
deposited with the Government.

Rentals

Payments for rentals would attract tax deduction at source.

Indirect Taxes

In India, indirect taxes is a vast ocean as there are number of taxes to be paid on manufacture,
import, sale and even purchase in certain cases. Further the law is governed less by the Acts and
more by day to day notifications, circulars and orders by the Governing bodies. So an explicit
understanding is very much essential. A simplistic way to understand Indirect taxes is as follows:

No. Nature of Applicable Law Governed By

Activity
1 Provision of Service Tax.Generally uniform rate of 12.36% As Governed by the
services (proposed to be 14% from 01-04-2015) is Finance Act, 1994
charged by Service tax Provider from recipient and other
except in certain cases where liability is split subsequent Finance
between the provider of servicer and the Acts together read
recipient of service.Also in some cases, where with notifications,
there is mixed component of provision of circulars.Service tax
service and provision of materials, there is some is payable to the
abatment given and service tax charged on the Central
remaining part. Government.

E.g. For restaurants, the service tax is charged

only on 40% of the bill as it is assumed by Govt
that the total bill consists of 60% materials and
 40% service.

There is an exemption on payment of Service

tax if the total turnover did not cross Rs. 1
million in the previous Financial Year.
2 Manufacture Central Excise duties are leviable on the Central Excise Act,
of Excisable manufacture of goods. However, the incidence 1944 read with
Goods of duty is postponed to the clearance of goods Central Excise
from factory or approved warehouse. It means Tariff Act, 1985
the duty is payable once the manufactured along with Rules
goods leave the Warehouse/ Factory.Below are prescribed and
some of Excise duties leviableBasic Basic Circulars/
Excise Duty is the most common Excise duty Notifications issued
on manufacture of Goods. It is imposed under by the Central
section 3 of the Central Excise Act of 1944 on Board of Excise and
all excisable goods other than salt produced or Customs.It is
manufactured in India, at the rates set forth in payable to the
the schedule to the Central Excise tariff Act, Central
1985, falls under the category of basic excise Government.
duty in India.

it is mandatory to pay duty on all goods

manufactured, unless exempted. For example,
duty is not payable on the goods exported out of
India or if the turnover does not reach Rs. 15
million in a year or based on certain process of
production.

Excise duty rates are different for each product

and based on harmonized system of
classification.

The rates can be found in the following link

Apart from the basic excise duty, the other

types of Excise duties are as follows but they
are not of much relevance to the vast majority
of goods as they are very specifically levied.

Special Excise Duty : This is the duty

leviable under Second Schedule to the
Central Excise Tariff Act, 1985 at the
rates mentioned in the said Schedule. At
present this is leviable on very few
items.
 Additional Duties of Excise (Textiles
and textile Articles) : his duty is
leviable under section 3 of the
Additional Duties of Excise (Textiles
and Textile Articles ) Act, 1978. This
is leviable at the rate of fifteen percent
of Basic Excise Duty payable on
specified textile articles.

Additional Duties of Excise (Goods of

Special Importance) : duty is leviable
under the Additional Duties of Excise
(Goods of Special Importance) Act,
1957. on the specified goods mentioned
in its First Schedule.

National Calamity Contingent Duty

(NCCD): This duty is levied as per
section 136 of the Finance Act, 2001, as
a surcharge on specified goods like like
pan masala, branded chewing tobaco,
cigarettes, domestic crude oil and
mobile phone.

It should be noted that the excise duty is not on

sale but on removal or clearance of goods
which may or may coincide with sale.
3. Import of Customs duty is required to be paid whenever Customs Act, 1962
Goods goods are imported from other countries in read with Customs
India. Normally on Exports, there is no Tariff Act,
Customs Duty except for export of a few items. 1975.Collected by
Thus the taxable event is the import/ export of Central Government
goods.There are mainly two ways in which
Customs is calculated and collected:

1. Specific Duties: Specific custom duty

is a duty imposed on each and every unit
of a commodity imported or exported.
For example, Rs.5 on each meter of
cloth imported or Rs.500 on each T.V.
set imported. In this case, the value of
commodity is not taken into
consideration.

2. Advalorem Duties: Advalorem custom

duty is a duty imposed on the total value
 of a commodity imported or exported.
For example, 5% of F.O.B. value of
cloth imported or 10% of C.LF. value of
T.V. sets imported. In case of
Advalorem custom duty, the physical
units of commodity are not taken into
consideration. Ad valorem duty is the
predominant mode of levy of customs.
Thus the value of goods has to be
determined as per customs law before
the Goods are released from Customs
control.

The rates of taxation in Customs can be found

here:

Apart from the basic Custom duties, there are

some other custom duties levied in certain
circumstances like:

Countervailing Duty of Customs (CVD)

To give Indian manufacturing a level playing

field, CVD is imposed. It is equal to the excise
duty on like articles produced in India. The base
of this additional duty is c.i.f. value of imports
plus the duty levied earlier. If the rate of this
duty is on ad-valorem basis, the value for this
purpose will be the total of the value of the
imported article and the customs duty on it
(both basic and auxiliary).

Anti Dumping duties

These custom duties are basically intended to

provide domestic manufacture against dumping
of goods by foreign countries in India at dirt
cheap ; even below cost prices. Mainly targeted
against cheap Chinese imports. These are
allowed after following WTO norms in this
regard.
4 Sale of Value Added Taxes (VAT) for intra-state Sales Each state has a
Goods and Central Sales Tax (CST) for inter-state specific Act.Central
sales.VAT is actually state specific since the Sales Tax Act deals
states and not Central Government is with inter-state sale
empowered to collect Taxes on Sale of Goods. of goods. However
 Thus each state has its own VAT specific Act even CST is actually
and Rules. In Maharashtra, it is the Maharashtra collected only by
Value Added Tax Act (MVAT) which governs states.
the sale of goods.The usual rate of taxes are 5%
and 12.5%. Goods which are specified are
covered under 5% and others are covered in
12.5%. Further there are some high value
transactions like trade in bullion which attracts
1% tax. Input credit is available on the goods
purchased and can be set off against the MVAT
payable.

Under MVAT Act, if trader has a turnover of

below Rs. 1 million in previous financial year,
then MVAT is not applicable in present year
upto Rs. 1 million. Please note that it is optional
and if the dealer. Trader does collect MVAT
from the purchaser then the same will have to
be deposited with the Government.

Also MVAT is not applicable if the Goods are

exported under H Form i.e. for exports.

Please note that the above are not mutually exclusive. For example, if the goods are
manufactured and sold by manufacturer , then both Central Excise and MVAT are applicable.

Further there are some local indirect taxes levied like Local Body Taxes (LBT) or Octroi.
These are expected to be abolished some time in future after introduction of Goods and Service
Taxes (GST).

Going forward, to avoid the cascading effect of different types of duties and also to avoid the
specific problem of non-availability of input credit for one type of tax against another, the
Government intends to create one single tax everywhere which shall be called as the Goods and
Service Taxes (GST). This is major tax reform intending to create one major market. It is
expected to come by April 2016.