The indirect tax levied on selling and purchasing of goods within India is referred to as Sales tax. It is an additional amount paid over and above the base value of the product which is being purchased. This tax, usually levied on the seller by the government, which enables the seller to recover the tax from the purchaser. It is usually charged from buyers at the point of purchase or the exchange of some specific Goods and is chargeable at a certain percentage of the product value.
Sales Tax is imposed by the Central Government as well as the State Governments. It is decided by the Central Government on the basis of its tax policies. State Sales Tax laws differs between states.
1. Types of Sales Tax
Though countries across globe have their unique Sales Tax policies, there are certain standard types of sales taxes that are applicable to most countries. They are:
- Wholesale Sales Tax– Tax imposed on individuals dealing with wholesale distribution of goods is referred to as Wholesale Sales Tax.
- Manufacturers’ Sales Tax– Tax imposed on manufacturers of some specific goods is known as Manufacturers’ Sales Tax.
- Retail Sales Tax– Tax imposed on sale of retail goods and directly payable by the final consumer is called Retail Sales Tax.
- Use Tax– This is a tax imposed on the consumer for goods bought without paying sales tax. This usually holds true when goods are bought from vendors who are not a part of any tax jurisdiction.
- Value Added Tax– An additional tax imposed by some central governments on all purchases is called the Value Added Tax.
2. Sales Tax in India
In India, policies regarding sales tax are governed by Central Sales Tax Act, 1956. It lays down rules pertaining to tax laws that are binding on the sale and purchase of goods, as well as sales taxes chargeable by the Central government. The Central Sales Tax on any particular product is paid in the state where it is being purchased.
3. Central Sales Tax
The following are some of the important features of the Central Sales Tax Act.
- Lays down principles regarding the time of sale and purchase of goods
- Enlists goods that have special importance for trade and commerce
- Lays down regulations regarding charging, collection and distribution of taxes generated from inter-state trade
- Holds the final authority for settling inter-state trade disputes
4. State Government Taxes
State Governments in India have the power to decide Sales Tax policies as per their unique Financial requirements. This explains the reason as to why Sales taxes differ from state to state. States classify businesses dealing in the sales of goods under three heads – Manufacturers, dealers and sellers. Each of them require certificates to operate legally.
5. Exemptions from Sales Tax
The following categories are exempted from the State Sales Tax and are offered to overcome double taxation, or on humanitarian grounds.
- Certain specific goods as per the list of goods that have been exempted by the state Governments.
- Products from sellers with valid state resale certificates.
- Products sold for the purpose of charities or educational institutions like schools.
6. Sales Tax Calculation
Sales Tax rate applicable on a particular product can be calculated through a simple formula that is:
Total Sales Tax = Cost of item x Sales tax rate
While the formula is a simple one, sellers and manufactures need to consider the following while calculating Sales Tax on their Goods:
- It is calculated as a percentage
- Be updated on the Sales Tax rate of the state and city that the manufacturer or seller belongs to, as it differs from state to state
7. Sales Tax Violations
Manufacturers and sellers need to be aware of some of the most common violations to prevent themselves from committing them. These are:
- Providing inaccurate information while filling Central Sales Tax (CST) form.
- Failing to secure registration as per mentioned in the CST Act.
- Not abiding up by the security provisions mentioned in the CST Act.
- Misappropriation of goods bought at discounted rates.
- Registering with any false identity.
- Collecting Sales Tax without securing necessary registration.
- Furnishing inaccurate or false statements about the purchased goods.
Sales tax is a particular form of indirect tax levied on the sale and purchase of goods within India. The seller of the Goods can recover sales tax from the purchaser. It is imposed by the Government. Sales tax is charged at both the levels legislation, Central and State. The tax levied by the Central Government is known as the Central Sales Tax, whereas tax levied by the states is called Sales Tax.