Taxes in India are of two kinds. Direct taxes, such as income tax, are paid by the person who earns the income, and indirect taxes, such as GST and customs duty, are built into the price of what you buy.
Below: what each tax is, who collects it, how the two kinds differ, and which old taxes no longer exist.
Types of Taxes in India: Direct and Indirect
India taxes income and wealth through direct taxes, and taxes spending through indirect taxes. The test is simple: if the person who pays the government also bears the burden, the tax is direct.
| Kind | Examples | Administered by |
|---|---|---|
| Direct tax | Income tax, corporate tax, capital gains tax, STT | Central Board of Direct Taxes |
| Indirect tax | GST, customs duty, central excise on petroleum | Central Board of Indirect Taxes and Customs |
| State and local | Professional tax, property tax, stamp duty, state excise | States and municipalities |
Both boards sit under the Department of Revenue. You can read their notices on incometaxindia.gov.in and cbic.gov.in.
Direct Taxes in India
A direct tax is charged on your income, profit or capital gain, and you pay it to the government yourself or through a deduction at source. You cannot hand the burden to anyone else.
| Tax | Charged on | Who pays |
|---|---|---|
| Income tax | Income of individuals, HUFs and firms | The earner |
| Corporate tax | Profit of a company | The company |
| Capital gains tax | Profit on selling shares, property or funds | The seller |
| Securities transaction tax | Trades in listed shares and units | Buyer and seller |
| Minimum alternate tax | Book profit of a company | The company |
Income tax is the one most people meet. It is charged by slab, and the slabs differ between the old and the new regime, as the Income Tax Slabs FY 2025-26 guide shows.
Work out your income tax
Compare your tax under the old and new regimes in a few inputs.
Part of your direct tax is paid before you file, through TDS and advance tax. Capital gains on shares and funds are covered in the Mutual Fund Taxation guide.
Indirect Taxes in India
An indirect tax is charged on a sale, a service or an import, and the seller adds it to the price you pay. The government collects it from the seller, but the consumer bears it.
| Tax | Charged on | Who bears it |
|---|---|---|
| GST | Supply of goods and services | The final consumer |
| Customs duty | Goods imported into or exported from India | The importer, then the buyer |
| Central excise | Petroleum products, after GST | The buyer through the price |
| State excise and VAT | Alcohol and petroleum, outside GST | The buyer through the price |
A Rs 10,000 phone with 18% GST costs Rs 11,800, and the Rs 1,800 of GST is the tax. Test any price with the GST Calculator, and see every slab in GST Rates in India.
How to Tell a Direct Tax From an Indirect Tax
You can classify any Indian tax in five steps, and the answer rests on who bears the burden.
Find who pays the government
Check who deposits the tax. If it is the person who bears the burden, the tax is direct.
Check whether the burden can move
If the seller can add the tax to the price and pass it on, the tax is indirect.
Look at the base
Taxes on income, profit or capital gains are direct, and taxes on a sale, import or supply are indirect.
Identify the collector
The Central Board of Direct Taxes runs direct taxes, and the Central Board of Indirect Taxes and Customs runs GST and customs.
Check the law still applies
Gift tax, wealth tax, service tax and octroi were abolished or merged, so confirm the tax is in force.
Apply the steps to property tax: the owner pays and cannot pass it on, so it is direct, though a municipality levies it.
Difference Between Direct and Indirect Tax
The main difference is whether the burden can be shifted. A direct tax stays with the person charged, and an indirect tax moves down the chain to the buyer.
| Basis | Direct tax | Indirect tax |
|---|---|---|
| Charged on | Income, profit or wealth | Goods, services and imports |
| Burden | Cannot be shifted | Passed on to the consumer |
| Paid by | The taxpayer to the government | The seller to the government |
| Linked to income | Yes, rises with income | No, same price for all buyers |
| Administered by | CBDT | CBIC |
| Effect on prices | None directly | Raises the price of goods |
| Evasion | Possible through false returns | Harder, tied to invoices |
Direct tax is progressive, since a higher income pays a higher rate. Indirect tax is closer to regressive, because a rupee of GST takes a bigger share of a small income.
Types of GST: CGST, SGST, IGST and UTGST
GST has four parts, and which one applies depends on where the buyer and the seller are. A sale inside one state carries CGST and SGST, and a sale between states carries IGST.
| Type | Full form | When it applies |
|---|---|---|
| CGST | Central Goods and Services Tax | Sale within a state, goes to the Centre |
| SGST | State Goods and Services Tax | Sale within a state, goes to the state |
| IGST | Integrated Goods and Services Tax | Sale between states and imports |
| UTGST | Union Territory Goods and Services Tax | Sale in a union territory without a legislature |
On the Rs 10,000 phone at 18%, a sale inside a state splits the Rs 1,800 into Rs 900 CGST and Rs 900 SGST. A sale between states charges the full Rs 1,800 as IGST. The GST portal carries the law and rates.
Customs Duty and Excise Duty
Customs duty is an indirect tax on goods that cross the border, charged under the Customs Act, 1962. Imported goods usually carry basic customs duty and then IGST on the total.
Check the current duty on any item in the tariff on cbic.gov.in, because Budget changes alter these rates often.
State and Local Taxes
States and municipalities levy their own taxes, and they sit outside the direct and indirect split of the Centre. The rates and rules differ from one state to the next.
| Tax | Levied by | Note |
|---|---|---|
| Professional tax | State | Capped at Rs 2,500 a year, not in every state |
| Stamp duty and registration | State | Paid when a property changes hands |
| Property tax | Municipality | Paid yearly by the owner |
| State excise | State | On alcohol for human consumption |
| Toll and entertainment levies | Authority or state | Vary by state and road |
To see what property transfer costs, use the Stamp Duty Calculator. Professional tax comes off many salaries every month.
Taxes That No Longer Exist
Several taxes in old lists are gone. Gift tax, wealth tax and service tax no longer exist as separate levies, so a list that shows them is out of date.
| Tax | What happened |
|---|---|
| Gift tax | The Gift Tax Act was repealed in 1998, and gifts are now taxed as income above Rs 50,000 |
| Wealth tax | Abolished from 1 April 2016, replaced by a surcharge on high incomes |
| Service tax | Merged into GST on 1 July 2017 |
| VAT and central sales tax | Merged into GST, except on petroleum and alcohol |
| Octroi and entry tax | Subsumed into GST or withdrawn by the states |
| Fringe benefit tax | Abolished from assessment year 2010-11 |
Education cess also changed form, and today a 4% health and education cess is added on top of income tax. It is part of your income tax bill and not a separate tax you pay.
Where You Pay Tax in a Year
One person meets both kinds in a single year. The figures below are illustrations for FY 2025-26 under the new regime, and they are not a tax return.
| Event | Tax | Amount |
|---|---|---|
| Taxable income of Rs 15,00,000 | Income tax with 4% cess | Rs 1,09,200 |
| Buy a phone for Rs 10,000 | GST at 18% | Rs 1,800 |
| Company profit of Rs 1,00,00,000 | Corporate tax, section 115BAA | Rs 25,16,800 |
| Buy listed shares of Rs 1,00,000 | STT at 0.1% on the buy side | Rs 100 |
The income tax figure follows the slabs of 5% from Rs 4 lakh, 10% from Rs 8 lakh and 15% from Rs 12 lakh. The company figure is 22% plus a 10% surcharge and 4% cess.
Advantages and Disadvantages of Each
Each kind of tax has strengths and weaknesses, which is why India uses both. Direct tax is fairer to the taxpayer, and indirect tax is easier to collect.
| Advantages | Disadvantages | |
|---|---|---|
| Direct tax | Progressive, certain and tied to ability to pay | Compliance is heavy and some income escapes the net |
| Indirect tax | Easy to collect and everyone contributes | Raises prices and is regressive in effect |
Planning decisions differ too. You can lower a direct tax with deductions, while an indirect tax is fixed by the price and the rate.
The Income-tax Act 2025
The Income-tax Act, 2025 replaces the Income-tax Act, 1961 from 1 April 2026, and it replaces the terms previous year and assessment year with one term, tax year.
Returns for income earned up to FY 2025-26 still follow the 1961 Act, and the filing dates are in ITR Filing Last Date. The rates quoted on this page apply to those years, so check the current Finance Act for later years.
Frequently Asked Questions: Types of Taxes in India
Disclaimer: Rates and rules change by Finance Act and notification, so confirm them on incometaxindia.gov.in and cbic.gov.in before you rely on them. This page is general information and not tax or legal advice.