Excise duty is imposed on the manufacturer of
excisable products and is levied on a wide variety of commodities
manufactured in India. This duty is an important source of revenue
for the central government.
Rates vary depending on the type of commodity,
and even for the same type of commodity the rates often differ
depending on circumstances such as end-use and taxability of inputs.
Although generally ad valorem, the rates may also be specific or a
combination of ad valorem and specific. They are prescribed in the
Central Excise Tariff Act and are revised from time to tie by the
annual Finance Acts or through notifications. Reference to the
former Act is required to determine the applicable rate for any
commodity in question.
Excise duty must be paid before the goods are
cleared from the factory. Small-scale industries enjoy exemption
from excise tax up to the specified value of goods cleared. The
state governments are also empowered to levy excise duty on a few
commodities, such as liquor, if they are not taxed by the central
government. Excise drawback is available if the goods manufactured
Although India does not have a typical
value-added tax system, under the MODVAT (modified Excise Rule, a
manufacturer can obtain credit for excise tax paid on capital goods
and on inputs used in the manufacture of final products. The scheme
is applicable to notified inputs and final products and covers most
taxable commodities. Credit is also available for additional
customs duty (countervailing duty) paid on imported capital goods
and inputs. No credit of excise tax is available on inputs if the
related final products are exempt unless they are exported.
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Sales tax is the most important source of revenue
to the states and is imposed on virtually all sales of goods. It is
primarily the liability of the seller, who generally recovers it from
the purchaser. Each state has its own sales tax act under which tax is
imposed at different rates. Sales of imported items and sales by way
of export are generally exempt from sales tax. Luxury goods are
normally taxed at a higher rate than other commodities. The sales tax
acts of certain states provide for certain additional levies, i.e.,
works contracts tax (imposed on a contractor for manufacture,
erection, repairs, etc.), turnover tax (imposed on the value of
turnover exceeding a certain limit) and purchaser tax (imposed on the
value of goods purchased from suppliers that are not registered under
the sales tax laws).
The Central Sales Tax Act covers interstate
sales. A concessional rate of sales tax is applicable if the buyer is
registered with the Sales Tax authorities.
It is advisable for an investor to be aware of
sales tax liability under any proposed contract, because its impact
can be considerable.
Customs duties are levied on commodities
imported into India. However, drawbacks may be available if the
imported items are reexported or used in manufacture for export.
Customs duty is also imposed on the value of certain exports. The
rates are prescribed in the Customs Tariff Act, 1975 and are revised
from time to time by the annual Finance Act or by various
notifications. Customs duties, particularly on imports, may be a
significant cost factor in an Indian project due to the generally
high rates of duties, unless corresponding drawbacks are available
Stamp duty is levied at various rates on
documents, such as bills of exchange, promissory notes, insurance
policies, contracts effecting a transfer of shares, debentures, and
conveyances for the transfer of immovable property. Stamp duty on
the transfer of shares and conveyances of immovable property is
normally payable by the purchaser. The rates are prescribed by
central government legislation, the Indian Stamp Act 1899, but rates
on some documents have been revised through state government
Expenditure tax is levied under the
Expenditure Tax Act, 1987 at the rate of 10 percent on payments
made to hotels toward room charges, food, beverages, and other
services. This tax is collected by hotels from their customers and
deposited with the central government. However, it is not
applicable to hotels with room charges of less than Rs 1,200 per
day pr person.
Service tax, introduced for the first time in
1994, is imposed at 5 percent on commissions and brokerage fees
charged by stockbrokers, the gross amount of telephone bills, and
premiums for nonlife insurance.
Various other taxes or rates are levied by
the municipal authorities (e.g., on goods entering their
jurisdiction and on the annual value of property), by state
governments (e.g., on motor vehicles and amusements) and by the
central government (e.g., on foreign travel and domestic air