Sales Tax in India

The Sales Tax is a small percentage of product’s value charged at the point of exchange or buying a new product. There are different forms of sales tax- retailers, wholesale, manufacturers, and value added tax (VAT).

Different forms of Sales Tax :

Retail Sales Tax - It is a tax charged at the time of sale of retail goods and is directly paid by final consumer.

Manufacturers Sales Tax - It is levied on the manufacturing of certain goods.

Wholesale Tax - It is levied on individuals who deal with wholesale distribution or sale of manufactured goods.

Use Tax - This tax is levied on the consumer, if he or she has purchased good without paying sales tax. It generally happens from vendors who are not under the tax jurisdiction.

Value Added Tax - VAT is an additional tax levied on all sales by certain governments.

One of the major reasons for the growth and development of country is implementation of sales tax in India. We Indians, follow a system of a central union government in each state. It is known as Central Sales Tax act,1956. This act allows the central government to collect sales tax on various products. The central sales tax is applicable on a state where the particular goods are sold.

Objective of levying Central Sales Tax Act, 1956 :

The Central Sales Tax Act was formulated with an objective to make tax collection streamlined and simpler.

  • Provide provision for levying, collection and distribution of taxes collected from sale of goods through interstate trade.
  • To frame principles for determining whether sale and purchase of good occurs or not.
  • Classify certain goods as being of special importance for trade and commerce.
  • Be the competent authority to settle interstate trade disputes.

Tax applicable on inter-state sales :

  • For instance, if an individual resides in Karnataka selling goods to a person in Maharashtra, then liable to inter-state sales tax.
  • If Ramesh from Telangana delivers goods to Harish in Gujarat, who in turn sells it to Krishna in Bihar by transferring the documents of title during the transfer of goods from Telangana to Bihar.

The most Common Central Sales Transaction Forms :

Form C This form helps the purchasing dealer to get goods at concessional rates from the seller.
Form D This is issued by the government department on purchasing of goods.
Form E1 This is issued by the dealer who initiates the inter-state movement of goods.
Form F This is issued when the goods are sent to a different state.
Form H This is issued by an exporter for the purchase of goods.
Form I This is issued by dealers in Special Economic Zones.

Get to know about Sales Tax Exemptions :

The state is offering tax exemptions in certain cases on humanitarian grounds or to avoid being in a situation of double taxation.

  • All the sellers with genuine state resale certificates are exempted from tax.
  • Products sold to charities or schools are provided tax exemptions.
  • There is a list of essential and local commodities which are exempted from sales tax.

Get to know about Sales Tax Exemptions :

Total Sales Tax = Cost of item x Sales tax rate

For example : If Mr. Kumar purchases a box of biscuits at Rs. 100 which have a sales tax component of 10%, then the total sales tax paid by him becomes (100 x 0.10) = 10
Thus, he pays a sales tax of Rs. 10 on the product.

Get to know about Sales Tax Exemptions :

  • Sales tax might vary from state to state and it pays to be informed of the rate in your particular state and city.
  • Sales tax is calculated in percentage form.
  • Add the cost for multiple items before calculating the sales tax.

Violation of Sales Tax Rules :

Tax can become complicated, sometimes unintentionally violates the tax rules. Here sharing the common scenarios.

  • If someone provides false or misleading information in the forms.
  • When one does not obtain registration according to the CST Act.
  • If you are not following the security provisions mentioned in the CST Act.
  • Misappropriation of goods purchased at discounted rates.
  • Pretending oneself as a dealer
  • Unregistered dealers collecting sales tax from consumers is a violation.
  • Providing incorrect statements about purchased goods.

Central Board of Direct Taxes :

The Central Board of Direct Taxes is an apex body responsible for administering the taxes in the country. It is a statutory body functions under the purview of the central board revenue act 1963. It is a division of the Ministry of Finance, working under the ambit of the Department of Revenue.

Composition of Central Board of Direct Taxes :

The Central Board of Direct Taxes is composed of the following members.

  • Chairman
  • Member (Income Tax)
  • Member (Legislation and Computerisation)
  • Member (Revenue)
  • Member (Personnel and Vigilance)
  • Member (Investigation)
  • Member (Audit and Judicial)

Functions :

The Central Board of Direct Taxes looks addresses all issues and matters concerning the levy and collection of direct taxes in the country.

  • Share necessary inputs to frame policies for direct taxes
  • Manage the direct tax laws in collaboration with the Income Tax Department.
  • Processes and investigates complaints related to tax evasion.

Frequently Asked Questions

  • What is the formula to calculate sales tax?
    The main formula to calculate the sales tax-
    Total Sales Tax = Cost of item x Sales tax rate.
  • What factors to keep in mind while calculating sales tax?
    Sales tax may vary from state to state. You will have to pay your sales tax base on the state and the city in which you reside. If there are multiple items, the sales tax will be computed after adding the prices of all the items, Sales tax will be calculated in percentage. The different types of forms issued by Sales Tax authorities are Form C, Form D, Form E1, Form E2, Form F, Form H and Form I.
  • What is sales price?
    Sales price is the amount that manufacturers sell their product to its customers. The sales price will consist of packaging charges, insurance charge (if applicable), and the sales tax paid by the manufacturer.
  • What does inter-state sales mean?
    Inter-state sales starts with the movement of goods from one state to another for the sole purpose of selling the item to the customer.