How much tax does average Indian Pay including direct and indirect? - Professionals - Taxation - TIK Share
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How much tax does average Indian Pay including direct and indirect?

Rahul Rai


In India tax rates are too high. Income tax is straight 30% (with some changes for individuals and others). Indirect taxes are too high.

On an average if we buy something, what percentage of our cost is tax?

CA Pulkit Sharma


Lets discuss the tax we pay on a product. We will try to calculate the tax portion on a product you get from your retail store.

Cost Of production (Tax portion)

Suppose the raw material is imported. Custom Duty = 14%

After manufacturing - Excise - 14%

Once the goods are manufactured, VAT on sale-14.5%

Entry tax- 1% if bought from outside (In some states its exempted)

CST - Again if bought from other state - 2%

Road tax - Lets not consider it, we will take it as part of transport cost.

Income Tax - 30%, some companies make provision for income taxes too.

Total tax portion comes to 35%. So whenever we buy a product, the total cost is increased by taxes upto 35%.

Take a numerical example, imported raw material woth 100, pay custom duty 14Rs. Manufactured and cost is 125, pay excise of 17.5. Now transfered to other state for sale for Rs. 130. Add cst 2%, Rs. 2.6. Within state sale to consumers at Rs. 150, VAT 14.5%, Rs. 21.75.

The final price to consumer is 171.75, out of this indirect tax is 55.85. Suppose the profit made by this sale by all associated dealers was Rs. 10, pay another 3 Rs.

Final value of product - 171.75

Tax                             -  58.85

Percentage of tax in total value = 34.26.

After looking at these numbers we can blame government for inflation.

Note: Cost is not correctly considered in the example. Profit margin is also not standard. however if we calculate on standard terms, tax portion may increase. If we include other taxes which are not seperately accounted such as Road taxes, Enviroment taxes, Property taxes of factory or shop etc. tax portion will go even higher.