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The GST system (Goods and Services Tax) was introduced in India as a single, unified tax system that would replace multiple indirect taxes being collected at the centre and state levels. GST streamlines the taxation system as taxpayers no longer have to pay VAT, service tax, excise duties and other indirect taxes. But does that mean that indirect taxes have been removed completely? Let us take a look at what is indirect tax in GST – its meaning, difference with direct taxes, types of indirect taxes under GST, benefits, features of GST as an indirect tax, and more.

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Also read: GST impact on logistics   

What is an indirect tax? 

Let us first understand – What is an indirect tax? From the word ‘indirect’ it can be understood that this type of tax is levied and collected indirectly – that is, taxes that the government places on goods and services (instead of income and profits) moving the economic burden of the tax from one person (taxpayer) to another.  

For example, tax paid by the manufacturer to the government can be shifted to the wholesaler, who can further shift it to the retailer and ultimately the consumer. The tax therefore is paid to the government, but the ultimate burden is borne by the customer/consumer/end-user. This naturally means higher prices paid by the customer (i.e., prices including the tricking taxes). 

Why GST? 

From the meaning of indirect taxes, it can be understood that:  

  • These taxes are collected at multiple touchpoints  
  • The customer bears the final burden of the taxes 
  • Multi-level taxes naturally increase the final price of the product/service 
  • Collecting these taxes (i.e., payments, filings, etc.) is a complex and tedious task 

GST or Goods and Services Tax was introduced to solve for these challenges and many others. As a unified, multi-stage tax system, it replaces numerous indirect taxes in India, making tax collections and compliance simple, swift, and relevant. 

In India, indirect taxes are governed by the Central Board of Indirect Taxes and Customs (CBIC). 

Indirect tax under GST

What is indirect tax in GST? 

Indirect tax under GST is essential for the multi-faceted Indian economy. The GST system not only streamlines the multi-level taxation system but also merges the numerous, previously valid, indirect taxes into one. GST is imposed on the sale of goods and services and replaces other indirect taxes such as VAT, excise duty and service tax.  

Indirect tax in GST has been beneficial for all stakeholders across the supply chain.  

  • For the government, it has reduced tax evasions and boosted revenue collections 
  • For manufacturers/sellers, it has helped to reduce production/sales costs through the mechanism of claiming tax credits (i.e., Input Tax Credit in GST) 
  • For consumers, it has reduced the overall tax burden (i.e., taxed according to the GST tax slabs) 

GSST further has removed indirect tax barriers between states, creating a unified market and improving the economy. 

What are the indirect taxes replaced by GST? 

The purpose of indirect tax in GST has been to replace numerous indirect taxes with a unified nation-wide tax system – E.g., Central Sales Tax, Surcharge and CESS, Entry Tax, Taxes on advertisement, Taxes on lotteries, Entertainment and Amusement tax (exception for local bodies), Luxury Tax, etc.  

Here are the popular 4 indirect taxes subsumed by the GST system into one: 

  • Value Added Tax (VAT): This was applied state-by-state creating discrepancies in tax rates 
  • Service Tax: Different services were taxed differently, hence increasing compliance and administrative burden 
  • Central Excise Duty: This was for goods manufactured, hence adding to the overall product manufacturing cost  
  • Additional Customs Duty (CVD) and Special Additional Duty (SAD): Levied on goods imported to make them equal to goods produced domestically 

GST has helped to reduce the challenges of the different indirect tax types. For instance, with GST, excise duty is removed, hence lowering the manufacturing cost of goods and enabling fair market competition. Similarly, with GST, international trade is promoted, and domestic players have a fair ground to showcase with their offerings and compete.  

GST in India types

Types of GST in India – Redefining indirect taxation 

With GST replacing other indirect taxes, the process of tax collection has been streamlined and less complicated. There are different GST types prevalent in India today, based on the inwards and outwards flow of goods and services, across different states.  

Let’s take a look at the main types for inter and intra state GST levied: 

  • IGST: The Integrated GST is levied and collected by the Centre on all inter-state supply of goods and services (e.g., goods supplied from Maharashtra to Karnataka, from Uttar Pradesh to Chandigarh, etc.) 
  • CGST: The Central GST is Centre’s share and is levied and collected by the Central Government on all intra-state supply of goods and services (e.g., goods supplied from Pune to Mumbai, or Chennai to Coimbatore, within the same state) 
  • SGST: The State GST is the state’s share and levied and collected by the State Government on all intra-state supply of goods and services (e.g., GST on goods supplied from Kolkata to Asansol will be collected by the government of West Bengal) 
  • UTGST: The Union Territory GST is the UT’s share of taxes and levied and collected by the UT Government on the supply of goods and services within the union territory(e.g., GST on goods supplied from Puducherry to Puducherry will be collected by the government of Puducherry) 

Note: GST collected on goods/services is for taxable goods only i.e., not on goods/services with GST exemption 

Types of indirect taxes in India (other than GST) 

GST as indirect tax has replaced several indirect taxes. Let us take a look at some indirect tax types that are still prevalent: 

  • Customs duty: This type of indirect tax has remained to facilitate international trade and is imposed on goods imported into India, often making the cost of international goods more expensive than domestically produced goods 
  • Education Cess and Higher Education Cess: Applied often on customs duties, these taxes are intended to fund education and related social programmes
  • Road and infrastructure Cess: Charged on specific products like petroleum and high-speed diesel, the cess is taken to support infrastructure development

How has indirect taxes in GST helped businesses?

The advantages and disadvantages of GST are many and it goes without saying that the GST regime has helped the government, businesses and customers in different ways. Let’s learn how:

GST benefits for businesses:

  • Stay compliant and file GST returns efficiently through a unified system and simplified tax structure
  • Claim Input Tax Credit to boost profitability and pay taxes on actual sale/purchase of goods and services
  • Improve efficiency in business (e.g., reduce tax-driven costs associated with warehousing and transportation across states)

Benefits of GST for the government:

  • Wider tax base and revenue by including more businesses into the GST regime (Also read: GST registration limit)
  • Improved overall tax compliance and tax evasion through a centralised, digital tax collection system
  • Streamlined administrative efforts and costs by consolidating multiple indirect tax under GST systems

GST advantages for consumers:

  • Reduced tax burden as GST removes the cascading effect of multiple indirect taxes on the end customer/consumer
  • Enhanced transparency through uniform GST rates across states, enabling consumers to know of the exact taxes they have to pay

GST indirect tax calculation

How is indirect tax in GST calculated?

When it comes to staying compliant in business, it’s imperative for you to understand how to calculate indirect tax in GST. It’s a straightforward process and you can use an online GST calculator or any other tool for calculating how much GST you have to pay. Let’s take a closer look.

Formula for GST calculation:

GST amount payable = Cost of the Product/Service x GST %


If the cost of a steel product is ₹3000 and the applicable GST rate is 18%, then GST collected would be:

GST amount = ₹3000 x 18/100 = ₹540

Total price of good for customer = ₹3000 + ₹540 = ₹3,540 (including GST)

GST makes it easier for businesses to compute the tax payable, collect the right GST percentage as per the product/service, and maintain proper records for audit and compliance purpose.

*This article is for information only. For more details please visit the official GST website or consult with a GST practitioner or CA or tax consultant for professional advice.

Sohini Banerjee

Sohini is a seasoned content writer with 12 years’ experience in developing marketing and business content across multiple formats. At Tata nexarc, she leverages her skills in crafting curated content on the Indian MSME sector, steel procurement, and logistics. In her personal time, she enjoys reading fiction and being up-to-date on trends in digital marketing and the Indian business ecosystem.