Specific Tax and Ad-Valorem Tax – Indian Economy UPSC Notes
Specific Tax: A fixed amount of tax is charged per unit of a good or service., Ad-Valorem Tax: Tax is charged as a % of the value (price) of G & S.
✅ 1. Specific Tax 📌 Meaning: A fixed amount of tax is charged per unit of a good or service. Tax amount does not depend on the price of the product. Collected based on quantity, weight, size , etc. 📖 Example: Tax on petrol: ₹5 per litre Whether the petrol price is ₹80 or ₹100 per litre, the tax remains ₹5 per litre . ✅ Easy to remember: Specific = Fixed per unit ✅ 2. Ad-Valorem Tax 📌 Meaning: Tax is charged as a percentage of the value (price) of the good or service. Higher the price → Higher the tax , Lower the price → Lower the tax Based on the value of the product, not quantity . 📖 Example: GST on gold: 3% of the gold price If gold price = ₹50,000 → Tax = ₹1,500 If gold price = ₹60,000 → Tax = ₹1,800 Tax changes based on the value . ✅ Easy to remember: Ad-Valorem = "According to Value" ✅ Quick Comparison Table: Type of Tax Based on Example Effect Specific Tax Quantity, Size, Weight ₹5 per litre petrol Same tax, price doesn't matter Ad-Valorem Tax Value (price) 3% GST on gold value Tax changes if price …