How does indirect taxation work in India?

How does indirect taxation work in India?

I have a doubt in taxation system, could someone please clarify in layman's language?
I am buying a good from manufacturer with the following cost (100 for product cost)+14.5% VAT+12.5% Excise so the product cost is 127. Now I am going to do a service by getting the product for example the manufacturer manufactured the furniture for me so he imposed excise for manufacturing and VAT for selling. Now I have to do installation of this service so it cost me 127+profit 13 rupees + service tax 15% = 161 rupees. Again from my profit of 13 I have to take my salary 
(for example 5 rupees) for that I will pay income tax and 25% corporate tax for the remaining profit (8 rupees). So in this case the amount of tax I have paid to the government is 12.5 (excise)+14.5 (VAT)+ 21 (Service tax) + 0.5 Income tax (for 5 rupees)+ 2 as corporate tax for company profit (from the 8 rupees). So in total 50.5 as tax paid for 161 rupees which comes around 32%, am I understanding correct? Are we paying this much if indirect tax, then why India is still begging and no development. Are all these money are looted by politicians and bearcats?

Asked 8 years ago in Service Tax

Hiii

Good Morning

In ur above case while u rendering services you can take credit of excise duty while paying service tax

Revise calculations are as under

First invoice I e from furniture manufacturer

100 + 14.5(excise)+ 14.30(vat 114.5*12.5%)= 128.80

In this your Cost is 114.30

Service Tax Input 14.5

Now u want profit Rs 13 on cost

Ur calculation is

Service value 127.30 (114.30+13)

Service tax 19.10 (127.30*15%)

Total 146.40

U have to pay service tax 19.10-14.50=4.60

After GST vat credit is also available for u to avoid cascading effect

Income tax is different thing which u have to pay on income not on sale value thus corporate tax calculation is on net income

Hope ur queries solved now

Lalit Bansal

CA, Delhi

776 Answers

61 Consultations

Talk to Lalit Bansal

The silence here is your answer Sir.

And by the way the corporate tax is 30% and not 25%.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, ACA, LLB-GEN, CERT. FAFP

Rohit R Sharma

CA, Mumbai

2104 Answers

95 Consultations

Talk to Rohit R Sharma

Dear Sir,

With respect to your question please note following :

- You have purchased furniture on which you have paid tax in terms of VAT & Excise out which you will get credit of amount paid as VAT

- At the time of installation you have to pay service tax but it is not from your own pocket but bared by your customer so its tax to him/her.

- At the time of sales only you have to pay VAT which you collect from your customer and not bare by you except on your profit portion.

- For Salary of Rs. 5 taken you already got basic exemption and if you are earning over and above a point than only income tax is payable i.e. also only @ 10% or 20% till income of Rs. 10 Lacs

- For your company whenever it earns profits ( After deducting all the above tax as cost whenever paid from your own pocket- non creditable) you have to pay tax @ 30.9% only.

- So if you see effectively on your income earned you are paying tax of roughly around 40 - 45% and which is 56th Highest number of tax in the world so there around 55 different countries which charge tax at the rate which is more than tax charged in india including developed country like USA & UK.

With respect to your tax burden govt. is already working on GST which will ensure that none of the tax amount becomes cost in hands of businessman so it will further reduce the tax liability and also they are working in direction of reducing the effective income tax for corporate as well as personal. Corporate tax are proposed to reduced to 25% and so personal limit.

Also it worth to note that even after this much taxes only 16 Crore indian is liable to pay income tax out of total population of 130 Crore and from the money of this 16 crore people government run entire country including their corruptions.

I hope this would clarify the matter more appropriately. I though to answer this question to ensure the awareness among the people of India about real tax system and tax burden on them.