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Indirect Tax - Definition & Advantages of Indirect Tax | What is Indirect Tax?

Indirect tax is the tax government applies to goods and services. Unlike direct taxes deducted from income, indirect taxes come due at purchase. Service tax, customs duty, Goods and Services Tax (GST), and entertainment tax are examples of indirect taxes. The consumer ultimately pays these taxes. 

What is Indirect Tax?

Indirect tax is added to goods and services by the supplier, who collects the tax and pays it to the government. The consumer pays this tax when purchasing goods or services. GST and excise duty on fuel and alcohol are examples. 

For example, when you eat lunch at a hotel, the bill includes GST. If the bill is Rs. 3000 and GST is 5%, you pay Rs. 3150, with Rs. 150 as the indirect tax. 

Types of Indirect Taxes

After the implementation of GST on July 1, 2017, many taxes merged into this unified tax structure. Types of indirect taxes include: 

  1. Service Tax: Charged on services.

  2. Excise Duty: Imposed on goods produced or manufactured in India.

  3. Value Added Tax (VAT): Levied on movable products sold to consumers.

  4. Customs Duty: Charged on goods imported to India.

  5. Stamp Duty: Applied during the transfer of immovable property within India and on legal documents.

  6. Entertainment Tax: Imposed on entertainment-related services or products.

  7. Securities Transaction Tax: Levied on trading securities on the Indian Stock Exchange.

Advantages of Indirect Tax

Indirect tax has several benefits: 

  1. Convenience: It is levied at purchase, reducing the burden on the taxpayer. It is also easier to collect.

  2. Ease of Collection: Indirect taxes, part of the price of goods and services, are relatively easy to collect.

  3. Equitable Contributions: Indirect tax ensures fair contributions. Luxury goods have higher taxes, while necessities have lower taxes.


Indirect tax is crucial for economic growth. Despite occasional changes by the government, it is a convenient and fair revenue collection method. By understanding indirect tax implications and advantages, individuals can better understand its impact on daily purchases and the economy.