Every year, when the Union Budget is presented, conversations often centre around income tax. But just as important are indirect taxes: the levies built into the price of almost everything we buy. These taxes shape what gets cheaper, what becomes more expensive, and how industries plan for the year ahead. Understanding indirect taxes is key to decoding why certain Budget announcements immediately ripple through household budgets, business strategies, and even inflation.
Ahead of the Union Budget 2026, NDTV Profit brings you a series of explainers on all the terms you need to catch up with, to stay abreast with all developments.
1. What Exactly Are Indirect Taxes?
Indirect taxes are taxes collected not directly from your income, but from the purchase of goods and services. Instead of paying the government out of your salary-like with income tax-you pay these taxes every time you buy something.
The seller collects the tax and passes it on to the government. That's why they're called indirect.
In India today, the major indirect tax is the Goods and Services Tax (GST), which replaced older levies like excise duty, service tax, and VAT. Some additional indirect taxes still exist outside GST-such as customs duty on imported goods and cesses on specific products like fuel or tobacco.
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2. Why Do Indirect Taxes Matter In The Union Budget?
The Union Budget is the government's annual financial roadmap, and indirect taxes make up a massive share of its revenue. In many years, taxes like GST and customs duty contribute almost half of the government's total tax income. Budget announcements on indirect taxes impact:
- Prices of everyday items (food, medicines, electronics, clothing)
- Business decisions (production, imports, expansion)
- Government spending power
Whenever Finance Ministers tweak rates, introduce exemptions, or rationalise slabs, it immediately influences inflation, consumption, and market sentiment.
3. What Are The Major Types Of Indirect Taxes Discussed?
a) Goods and Services Tax (GST)
Technically, GST decisions lie with the GST Council, not directly in the Budget. But the Budget still discusses:
- GST revenue trends
- refunds
- enforcement strategies
- compensation payments to states
b) Customs Duty
This is where the Budget plays the biggest role. These changes can make imports cheaper or costlier and shape domestic manufacturing. The Finance Minister often changes:
- Import duty on electronics, gold, and industrial inputs
- Export duties on items like iron ore
- Tariff exemptions for critical industries
c) Cesses & Surcharges
Cesses on petrol, diesel, coal, or luxury goods are often reviewed. They are levied for specific purposes and don't have to be shared with states, giving the Centre extra flexibility.
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4. How Do Indirect Tax Changes Affect Ordinary People?
Indirect taxes directly influence prices. For example:
- A cut in customs duty on mobile components may make phones cheaper.
- A higher cess on cigarettes or aerated drinks makes them costlier.
- Lower GST compensation cess on vehicles can shift car prices.
Because these taxes are embedded in the selling price, consumers feel the impact immediately.
5. Why Do Economists Debate Indirect Taxes Every Budget Season?
Indirect taxes are sometimes called regressive-everyone pays the same rate, regardless of income. This means the tax burden can, proportionally, be heavier on lower-income groups. Economists therefore debate:
- Should essential goods have lower or zero GST?
- Should luxury goods have higher indirect taxes?
- Should customs duties be raised to protect local industry or cut to reduce costs?
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