India has a well-developed tax structure with a three-tier federal structure:

  • union government
  • state governments
  • urban/rural local bodies.

The power to levy taxes and duties is distributed among the three tiers of government, in accordance with the provisions of the Indian Constitution.

The main taxes/duties that the union government is empowered to levy are Income Tax (except tax on agricultural income, which the state governments can levy), Customs Duty, Central Excise Tariff and Service Tax.

The principal taxes levied by the state governments are sales tax (tax on intra-state sale of goods), stamp duty (duty on transfer of property), state excise (duty on manufacture of alcohol), land revenue (levy on land used for agricultural/non-agricultural purposes), duty on entertainment and tax on professions and callings. The local bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the local bodies), tax on markets and tax/user charges for utilities like water supply, drainage, etc.

Excise duties are levied on a wide range of items manufactured in India. On imported goods this is known as countervailing duty.

GST – goods and services tax

India has a plethora of indirect taxes, duties, surcharges. Indirect taxes in India have driven businesses to model their supply chain across an inefficient system owing to multiplicity of taxes and costs involved. With a view to ease the cumbersome tax system, facilitate seamless movement of merchandise across India and to improve the ease of doing business in India, the Government of India is replacing all the indirect taxes levied on goods and services by the central (read as federal) and state (read as provincial) governments to implement a unified  GST in 2017.

GST is expected to be a game changing reform for the Indian economy by creating a common Indian market and reducing the cascading effect of tax on the cost of goods and services. Read more about the GST in India.