Sales tax is an indirect consumption tax paid to the governing body for the sale of goods and services at retail, which is charged at a certain percentage of the value of the product from the consumer, collected by the retailer and passed on to the government. Sales tax is an additional amount of money which is paid on the purchase of goods and services.
Types of Sales Tax
Retail Sales Tax
It is charged on the retail goods and directly paid by the consumer.
Manufacturer’s sales tax
This tax is imposed on the manufacture of certain goods.
Wholesale sales tax
This tax is imposed on the sale or manufacture of wholesale products.
This tax is imposed on certain goods which are purchased without sales tax.
VAT or Value Added Tax is imposed when the commodity is sold to the consumer. It is a prominent part of GDP of any country. VAT is a multi-stage tax as it is imposed at every stage of the production of goods and services which are sold to the consumer. VAT is applicable on both local as well as imported products. A person who is earning more than five lakhs per annum from the supply of goods and services is liable to register for VAT payment.
Sales Tax in India
A significant reason for the high level of growth and development in the Indian economy can be attributed to the efficient taxation system in India. The Indian Central, as well as State Government, follow different rules and regulations regarding the Sales Tax payable by each entity.
What are the objectives of the Central Sales Tax Act?
- The primary objective of the Central Sales Tax Act was to make the taxation system more streamlined. The main objectives of the Central Sales Tax Act were:
- Providing provision for allocating, collecting and distributing the tax collected through sales in the interstate trade.
- Framing principles that determine when the sale and purchase of the goods occur.
- Classify goods if they are of special importance for trade and commerce industry of the country.
- It is considered as the competent authority that can resolve the interstate trade disputes
It is the amount paid to the dealer/trader in return for the goods that are sold. It includes all the charges like packing, insurance, incentives and sales tax received
The sales which lead to the movement/transfer of goods from one state to another. If an individual from Karnataka sells goods to a person in Telangana, the type of sale is known as inter-state sales.
CST Transaction Form
Different forms are issued by the Central Board of Direct Taxes that act as the guidelines and declarations which are followed by the dealers and are printed by the Sales Tax Authorities for different purposes. The forms are listed below:
This form allows the dealer to get goods at concessional rates from the seller.
This form is issued by the central/state government department which purchases the goods.
Form E1 is issued by the dealer who starts the inter-state movement of goods.
This form is issued by the seller when the goods are moving from one state to another state.
It is is issued whenever the goods are sent to a different state.
Form H is issued by an exporter
This Form is issued by dealers in the SEZs (Special Economic Zones)
State Government Taxes
The state governments have the authority to levy taxes on the sale/purchase of goods in their state. The sales tax varies for different states since the regulations regarding g sales tax are different in each state. Since the amount of sales tax levied on commodities are different in each state, the prices of the same good might carry across the states.
Exemptions from Sales Tax
- Sales Tax is exempted from resale products on showing the resale certificate by the sellers
- Products that are sold to charities are exempted from any form of sales tax
- A list of essential and local commodities in each state are exempted from any form of tax.
How to Calculate Sales Tax
The total sales tax rate is calculated by multiplying the sales tax rate to the cost of the item. For instance, if the sales tax rate is 20% and the price of a commodity is 200 rupees, then the total sales tax charged is 40 Rupees.
Points to Remember while Calculating Sales Tax
- Sales tax varies from state to state
- It is estimated in the form of percentage
- Prices of multiple items need to be added for calculating the sales tax
What happens if someone violated the Rules of Sales Tax
Understanding the tax system could be a complicated task. Sometimes people fail to know the regulations against the violations of rules of Sales Tax and end up paying a hefty penalty for that. Know about these common violations of the Sales Tax Rules to avoid paying the penalty:
- Providing false information in the forms
- If someone fails to obtain the registration according to the CST Act
- If someone doesn't follow the provisions mentioned in the CST Act
- Misrepresentation of the costs of goods and services sold in a different state
- Impostering as a dealer/seller
- If you're an unregistered dealer and you're collecting sales tax from the consumers
- If you have provided incorrect statement about purchased goods
What is the Central Board of Direct Taxes?
Central Board of Direct Taxes is the body which is responsible for implementing and maintaining the records on payment of taxes in the country. It assumed the authority under the Central Board Revenue Act in 1963 and it is a division of the Ministry of Finance
What is the composition and functions of the Central Board of Direct Taxes?
- Member of Income Tax Department
- Member of Legislation and Computerization
- Member of the Revenue Department
- Member of Personnel and Vigilance
- Member of the Investigation department
- Member of Audit and Judicial Department
The functions of the Central Board of Direct Taxes are:
- It provides inputs regarding how to frame the policies for direct taxation
- It implements the direct tax laws in the country along with the Income Tax Department
- The Central Board of Direct Taxes is also responsible for processing and investigating the complaints related to tax evasion