Difference Between Tax and Duty

The government earns revenues from various sources and one of its important means of income is tax and duty. They help the government to provide services to the people of the country like medical, railway, postal, banking, food, infrastructure, etc. Taxes are divided into two main categories Direct Tax and Indirect Tax. Indirect Tax has also two divisions, i.e. taxes and duties. Sometimes we get a little confused regarding tax and duty because we do not have complete knowledge of these two terms. Duty is a subset of tax.

In this article we will provide you all such differences between tax and duty which will help you to understand them clearly.

Content: Tax Vs Duty

1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

BASIS FOR COMPARISON	TAX	DUTY
Meaning	Tax is a mandatory obligation payable to the government.	Duty is a fee charged by the government on manufacture and import / export of goods.
Levied on	Income, wealth, services, sales etc.	Goods and financial transactions.
Types	Direct Tax and Indirect Tax	Custom Duty and Excise Duty
Scope	Wide	Narrow
Authority to impose	Central or State Government.	Central Government

Definition of Tax

Tax is a compulsory financial obligation levied by the government on income, goods and activities. It is one of the basic sources of government income which is utilized for providing various services to the people. The authority to impose tax is in the hands of Central and State Government. There are two major types of taxes, which are as under:

• Direct Tax: The tax, which is charged on the income or wealth of a person is known as Direct tax. Here the tax burden falls on the person himself, i.e. taxpayer and tax bearer is the same person. It is a tax in which the money is directly transferred from an individual’s pocket to the government’s pocket. The types of direct tax are:
  • Income Tax: Tax levied on the income of a person.
  • Wealth Tax: Tax charged on the wealth of a person.
  • Others: It includes entertainment tax and interest tax.
• Indirect Tax: The tax, which is charged on the goods or services, is known as indirect taxes. Here, the tax burden is shifted to another person, i.e. the taxpayer and tax bearer both are two different persons. It is a tax in which the money is first transferred from an individual to the taxpayer and then to the government. The division of indirect taxes is as under:
  • On goods:
    • VAT (Value Added Tax): Tax on intrastate sales.
    • CST (Central Sales Tax): Tax on interstate sales.
    • Custom Duty: Tax on manufacture of goods.
    • Excise Duty: Tax on import or export of goods.
    • Others: Octroi, Entry tax, etc.
• On Services:
  • Service Tax

Definition of Duty

A duty is a kind of tax payable to the government, charged on goods and financial transactions. It comes under the category of Indirect tax. The right to levy duty is in the hands of the Central Government. It also adds to the revenue of the government. The following are the types of duties:

• Excise Duty: Tax levied on the production of goods within the country is known as Excise Duty. It is also known by the name Central Value Added Tax (CENVAT). Central Excise Act, 1944 and the Central Excise Tariff Act, 1985 are the two important statutes which governs the Excise Duty in India. At present the rate of excise duty in the country is 12%.
• Custom Duty: When the goods are traded outside India then the tax levied by the Government of India is known as Custom Duty. It is generally charged on the import and export of the commodities. Custom Duty is governed by the Customs Act, 1962 and Customs Tariff Act, 1975. The tax charged on imports is known as Import Duty whereas tax on exports is known as Export Duty.

Key Differences Between Tax and Duty

The following are the major differences between tax and duty:

1. Tax is a financial obligation which is to be paid to the government compulsorily. Duty is a fee payable to the government on the manufacture and import / export of goods.
2. The duty itself, is a type of tax.
3. Tax is charged on individuals, wealth, services and sales, whereas Duty is charged on goods.
4. There are two major types of taxes, i.e. Direct Tax and Indirect Tax. Conversely, the major types of duties are Excise Duty and Custom Duty.
5. The Central Government or State Government can impose taxes but only the Central Government has got the authority to levy duty.

Conclusion

In India, the administration of tax and duty is done by the Department of Revenue which works under the control of Ministry of Finance. There are two boards which take care of the direct and indirect taxes. They are: Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC). The two boards are formed under the Central Board of Revenue Act, 1963.