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Indirect Taxes


Custom duties are levied on export and imports. These are levied on the basis of ad valorem i.e. certain % of price. In pre-reform time, India had a very high import duty but in post-reform time, duty has been reduced. Now it is just 10%.

Excise duty is levied on production and has no connection with its actual sale. It is levied by the central government. In order to remove multiplicity of tax, MODVAT was introduced in 1986–87. Under MODVAT Act, credit was given on duty paid input. In budget 2000–01, it was amended and renamed as CENVAT. It consists of basic duty of 16% and a special duty of 8, 16, and 24%.The basic excise duty paid on goods can be deducted from the excise collected on the output so that only tax on value added is paid.

  • Sales tax – It is tax on the sale of the goods. However some commodities are except from sales tax.
  • VAT (Value Added Tax)It was introduced in 1999 but implemented in 2005. It is a multistage sales tax with credit for tax paid on business purchases. For example, cloth worth Rs. 500 is purchased and sold at Rs. 750. Input tax rate and output tax rate are 5% and 10% respectively. Then VAT will be 50 (75–25).

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