Sales Tax

Sales tax is usually a percentage of a product’s value which is charged at the purpose of exchange or purchase and is indirect. The different sorts of value added tax are retail, manufacturers’, wholesale, use, and value added tax.

Note: Value added tax has been replaced by the products and Services Tax (GST) starting 1 July 2017.

What is Sales Tax?

Trade has formed an integral part of world history, shaping the world into the form it is in today. It is hard to imagine a world without any trading, be it of products or services. It was this desire to trade that led to countries embarking on voyages to search out new trading partners, eventually changing the whole demography of Earth.

The world survives and thrives on trade and governments across the globe have found a way to use trade to fill their coffers. Sales Tax may be a sort of tax paid to a administration body for the sale of products and services. Sales tax is an value added tax and is usually charged at the purpose of purchase or exchange of certain taxable goods, charged as a percentage of the worth of the merchandise . The value added tax depends on the govt in power and therefore the individual policies enforced by it, generally being simple to calculate and collect. In simple terms, the value added tax is a further amount of cash paid while purchasing goods or services.

Types of Sales Tax:

The concept of value added tax depends on the governing principles followed by governments, but there are some universal sales taxes applicable in most countries. The different sorts of sales taxes are mentioned below.

  • Retail value added tax – this is often a tax charged on sale of retail goods and is directly paid by the ultimate consumer.
  • Manufacturers’ value added tax – This tax is levied on the manufacturers of certain goods.
  • Wholesale value added tax – This tax is levied on individuals who always take care of wholesale distribution/sale of manufactured goods.
  • Use Tax – this is often a tax levied on the buyer for goods which are purchased without value added tax (generally from vendors who aren’t under the tax jurisdiction).
  • Value Added Tax – This is often an extra tax levied on all sales by certain governments.

Sales Tax in India:

India has emerged as a sound democracy has achieved great economic progress compared to most countries. A major reason for the growth and development of the country can be attributed to the taxes collected by the Government. India follows the system of a central union government at the centre and state governments in each state, with each government choosing to follow a taxation policy to meet their demands.

Central Sales Tax Act, 1956:

The Central value added tax Act governs the taxation laws within the country, extending to the whole country and contains the principles and regulations associated with value added tax. This Act allows the Central Government to gather value added tax on various products. The Central value added tax is payable within the state where the actual goods are sold.

Objectives of Central Sales Tax Act:

The Central Value Added Tax Act was formulated with the goal to form collection simpler and streamlined. The main objectives of Central State Tax Act are highlighted here.

  • Provide provision for levying, collection and distribution of taxes collected from sale of products through interstate trade.
  • Frame principles to regulate when sale and buy of products occurs.
  • Classify certain products as being of exclusive importance for trade and commerce.
  • Be the competent authority to settle interstate trade disputes.

Sale Price:

Sale price refers to the quantity payable to the dealer/trader in lieu of the products sold. It includes the price of packing, insurance charges (if any), incentives to engage buyers, and therefore the value added tax paid by the dealer. It doesn’t include cash discounts, installation costs, delivery costs and goods exchanged or returned by the customer.

Inter State Sales:

Inter-state sales introduce sales which cause movement or transfer of products from one state to a different , achieved by transferring the title documents while the products are being moved.

Example 1: If an individual in Karnataka sells goods to a person in Maharashtra.

Example 2: 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.

CST Transaction Forms:

All dealers need to follow certain guidelines and give declarations in prescribed forms to the buyer. Sales Tax authorities print and provide different forms for various purposes, each form being listed below.

  • Form C – this type allows the purchasing dealer to get goods at concessional rates from the vendor .
  • Form D – this is often issued by the govt department which purchases the products .
  • Form E1 – This is issued by the dealer who initiates the inter-state movement of goods.
  • Form E2 – this is often issued by the next seller when the products move from one state to the opposite .
  • Form F – This is issued when the goods are sent to a different state.
  • Form H – this is often issued by an exporter for the acquisition of products .
  • Form I – this is often issued by dealers in Special Economic Zones.

State Government Taxes:

Individual State Governments have the facility to levy value added tax to satisfy their financial requirements. The value added tax in several states vary for various products, with Value Added Taxes forming a huge chunk of state income. It is for this reason that certain goods are cheaper in a particular state compared to another state. States categorize individuals related to sale of products into manufacturers, sellers and dealers, with all needing certificates to figure under the ambit of the law.

Sales Tax Exemptions:

States offer tax emptions in certain cases, which may be humanitarian or to avoid double taxation.

  • Sellers with genuine state resale certificates are exempted from tax once they resale products.
  • Goods sold to charities or schools are provided tax exemptions.
  • There are a list of essential and native commodities which are exempted from value added tax.

Calculation of Sales Tax:

Sales Tax might sound a sort of complicated term to tons of individuals and a lot of us think that calculating it’s extremely hard, if not impossible. It is however faraway from the fact, as calculating value added tax is not any Herculean task if one gets the fundamentals right.

Total value added tax = Cost of item x value added tax rate

For Example: if Mr. Kumar purchases a box of chocolates which cost Rs. 100 which have a value added tax component of 10%, then the entire value added tax paid by him becomes (100 x 0.10) = 10

Thus he pays a sales tax of Rs. 10 on the product.

There are a number of points one must remember while calculating value added tax.

  • Sales tax might vary from state to state and it pays to be told of the rate in your particular state and city.
  • Sales tax is calculated as a percentage.
  • Add the costs for multiple items before calculating the value added tax.

Violation of Sales Tax Rules:

Taxes can sometimes be complicated and a personal may not be necessarily realize when he/she violates any provisions of the laws. Here are a number of the most common violations when it involves value added tax.

  • Providing false and misleading information in the forms.
  • Failing to get registration according to the CST Act.
  • Not following the safety provisions mentioned within the CST Act.
  • Misappropriation of goods purchased at discounted rates.
  • Falsely impersonating a projection or a dealer oneself as a dealer.
  • Unregistered dealers collecting value added tax from consumers may be a violation.
  • Providing incorrect statements about purchased goods.

Central Board of Direct Taxes:

The Central Board of Direct Taxes is an apex body which is responsible of administration of taxes within the country. It is a legal authority and functions under the purview of the Central Board Revenue Act of 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 consists of the subsequent 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 takes care of all issues and matters related to the levy and collection of direct taxes within the country.

  • It provides necessary inputs to frame policies for direct taxes .
  • It is responsible of the administration of tax laws together with the tax Department.
  • Processes and investigates complaints associated with tax evasion .

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