Indirect Tax: Meaning, Definition, Features, and Common Examples

Indirect taxes can disproportionately affect low-income individuals because they pay the same tax rate on goods and services as wealthier individuals. This means that a larger portion of their income goes toward these taxes compared to those with higher incomes. Understanding indirect taxes is important because they can impact your budget. When you shop, you might not realize how much of the price is due to these taxes. This can lead to surprises when you check out, especially if you are on a tight budget.

A Guide to Understanding Indirect and Direct Taxes

A tax is said to be direct tax whenimpact and Incidence of a tax are on one and same person, i.e., when a person on whom tax is levied is the same who finally bears the! In essence, an indirect tax is any tax or levy levied by the government at the level of production or industry. Indirect tax works by being added to the price of goods and services. When you buy something, the seller includes the tax in the total price. So, while you pay the indirect tax definition tax, you might not realize it because it’s included in the price you see. The company projected over $750 million in direct and indirect tax revenue from the proposed tax breaks and those approved in 2014.

Create a dynamic reference to a worksheet

The first step is to correctly calculate the applicable tax on a customer’s purchase. This can be particularly complex in the United States as sales tax rates vary significantly between jurisdictions. For example, when you purchase a soda at a store, the price you pay includes an excise tax on the soda. The store collects this tax from you and later pays it to the government.

Direct tax is that kind of tax, whose flow is direct, from the taxpayer to the Government. When the liability of tax falls on the same person who has to make payment of it, then the tax is said to be direct. That is to say, the individual on whom tax is levied, also bears the burden of it, in case of a direct tax.

• Indirect taxes are taxes that the government places on goods and services rather than on income.
• Indirect Taxes form a key component of a country’s Taxation System as well as Fiscal Policy.
• The money collected is used to construct roads, bridges, highways, hospitals, and other socio-economic welfare projects in the country.
• To get into the function’s insight, let’s write a simple formula that demonstrates how you use INDIRECT in Excel.
• Further, it includes Securities Transaction Tax (STT), Dividend Distribution Tax (DDT), Fringe Benefits Tax, Minimum Alternate Tax (MAT), etc.

Taxes Levied by Various Authorities in India

Based on the need, the government can raise or cut the tax rates. Customs duty is something that GST cannot replace since it involves international trading. If you have goods that have to be traded with another country, then this tax will be applied to them. In the same way, we have to pay taxes for products that come to our country from somewhere else. But there are still some products on which excise duty is applicable. Petroleum and its byproducts, fuel, and liquor all have excise duty.

What are some examples of indirect taxes?

As its name suggests, Excel INDIRECT is used to indirectly reference cells, ranges, other sheets or workbooks. In other words, the INDIRECT function lets you create a dynamic cell or range reference instead of hard-coding them. As a result, you can change a reference within a formula without changing the formula itself.

Example 2 – Variable worksheet name

The INDIRECT function syntax has two parameters where one is mandatory, and the remaining one is optional. A common problem with non-English localizations is not the INDIRECT function’s name, but rather different Regional Settings for the List Separator. In the standard Windows configuration for North America and some other countries, the default List Separator is a comma. While in European countries, the comma is reserved as the Decimal Symbol and the List Separator is set to semicolon. To make more complex 3-level menus or drop-downs with multi-word entries, you will need a bit more complex INDIRECT formula with a nested SUBSTITUTE function. You can use Excel INDIRECT together with the ADDRESS function to get a value in a certain cell on the fly.

• The dependent drop-down list is nothing but a list of one cell depending on the value entered in the other cell.
• They are typically levied against a producer or supplier, who subsequently passes the tax on to the buyer.
• This transparency enhances compliance and strengthens revenue collection.
• The key difference is that direct taxes cannot be shifted onto others, while the burden of indirect taxes can be passed on to consumers.
• As seen in the above table, the manufacturer collects Rs. 500 tax on the selling price of Rs. 5,000 from the retailer.

The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest. SmartAsset Advisors, LLC (“SmartAsset”), a wholly owned subsidiary of Financial Insight Technology, is registered with the U.S. Add to that the fact that they are only visible on the transaction receipt and are not mentioned on the price tag.

While they offer significant benefits in terms of fiscal stability, they also present challenges related to compliance, economic distortion, and political feasibility. Effective management and continuous reforms in the indirect tax system are necessary to address the evolving economic landscape and societal needs. GST is an indirect tax that applies to the supply of goods and services, simplifying the tax structure by merging several taxes into one. The main objectives of indirect tax are to generate revenue for the government and regulate consumption patterns. Higher taxes on goods and services may deter consumers from spending, especially if the items taxed are essential products.

The INDIRECT function can not only recognize cell references and ranges but named ranges too. For example, tax on saleable articles is usually an indirect tax because it can be shifted on to the consumers. Indirect tax is one whose flow is not direct, i.e. implied, as it flows through others. Taxes charged directly on the income or wealth of an individual is called Direct Tax. On the contrary, an indirect tax is a tax that is added to the price of goods and services.

Indirect tax is regressive in nature, meaning that it can disproportionately impact low-income earners. Since indirect taxes are applied uniformly on goods and services, lower-income households spend a higher percentage of their income on taxes compared to wealthier individuals. Every time you visit a restaurant or book a cab, you also pay a certain amount of indirect tax.

In all, the government receives a total tax of Rs. 550 (Rs. 500 from the manufacturer and Rs. 50 from the retailer). This is divided into Rs. 5,500 as the selling price and Rs. 550 as taxes. As seen in the above table, the manufacturer collects Rs. 500 tax on the selling price of Rs. 5,000 from the retailer. Since the manufacturer has not paid any taxes to the government earlier, he will pay the entire Rs. 500 collected from the government. Also known as the Central Value Added Tax, Excise Duty applies to all goods produced within the country’s borders.