A sales tax is a consumption tax charged at the point of purchase for certain goods and services. The tax is usually set as a percentage by the government charging the tax. There is usually a list of exemptions. The tax can be included in the price or added at the point of sale.

Ideally, a sales tax is fair, has a high compliance rate, is difficult to avoid, is charged exactly once on any one item, and is simple to calculate and simple to collect. A conventional or retail sales tax attempts to achieve this by charging the tax only on the final end user, unlike a gross receipts tax levied on the intermediate business that purchases materials for production or ordinary operating expenses prior to delivering a service or product to the marketplace. This prevents so-called tax “cascading” or “pyramiding,” in which an item is taxed more than once as it makes its way from production to final retail sale.

Sales tax can be levied either by the Central or State Government or Central Sales tax department. Also, 4 per cent tax is generally levied on all inter-State sales. State sales taxes that apply on sales made within a State have rates that range from 4 to 15 per cent. Sales tax is also charged on works contracts in most States and the value of contracts subject to tax and the tax rate vary from State to State. However, exports and services are exempt from sales tax. Sales tax is levied on the seller who recovers it from the customer at the time of sale.

The Two Types of Sales Taxes:

Sales taxes come in two varieties.

The first is a consumption tax or retail sales tax which is a straight percentage tax placed on the sale of a good. These are the traditional type of sales tax.

The second type of sales tax is a value added tax. On a value added tax (VAT), the net tax amount is the difference between the input costs and the sales price.

Sales taxes are considered by some to be regressive; that is, low income people tend to spend a greater percentage of their income in taxable sales (using a cross section time-frame) than higher income people. However, this calculation is derived when the tax paid is divided not by the tax base (the amount spent) but by income, which is argued to create an arbitrary relationship. The tax rate itself is flat with higher income people paying more tax as they consume more. While the tax on spending as a percentage of gross income may be regressive, the effective tax rates can be progressive on consumption due to exemptions or rebates. If a sales tax is to be related to income, then the unspent income can be treated as deferred (spending savings at a later point in time), at which time it is taxed. Sales taxes often exclude items or provide rebates in an effort to create progressive effects. In many locations, “necessary” items such as non-prepared food, clothing, or prescription drugs are exempt from sales tax to alleviate the burden on the poor. Others consider sales tax preferable since it taxes only consumption, which creates an incentive for savings and investment.

How to calculate Sales tax?

1)       Find out the sales tax in your area. The Federal Tax Administration has the sales tax for every city and state on file. Visit their website for your sales tax.

2)       To compute sales tax, it is helpful to have a calculator. If you do not have a calculator, most cell phones come equipped with them.

3)       Remember, sales tax is computed as a percentage.

4)       Take the retail price of the item, or items, you are about to purchase and multiply it by one and the sales tax percentage. For instance, if an item cost 49.99 and your local sales tax was 6.25%, you would multiply 49.99 by 1.0625. Adding the one to the beginning of the percentage adds the sales tax onto the price automatically.

5)       Be sure you know the sales tax in your city, not just the state’s sales tax. The city you live in no doubt has a higher tax rate than the state.

6)       For multiple items, simply add up the prices and multiply the subtotal by the one and the sales tax.

Sales State Tax Laws: Major Principles

The important principles applicable in case of state sales tax laws may be enumerated as below:

  • A good is regarded as sold/bought when the transfer involves money.
  • When the dealers are being assessed they need to provide all the documents and proofs of their tax payment so that the commercial or sales tax officer is satisfied.
  • In majority of the transactions, sales tax applies on the basis of a single point.
  • All the states have different procedures for appeals made by the assessees.
  • In some states the assessees are categorized into manufacturers, selling agents, and dealers, and they are required to obtain necessary certificates. Different rates apply to these entities.
  • All the dealers are supposed to make application registrations and procure it as well. The registration number needs to be provided for all cash or bill memos.

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19 Comments on Sales Tax

  1. MODASSIR IMAM says:

    TAX INDIA is very helpful to understand about taxes charges and updated our knowledge

  2. TAX INDIA is very helpful

  3. Sneha says:

    Thanx admin realy cool

    • pradeep garg says:

      Dear sir/mem,
      i m mba students,i have no knoledge regarding sales tax,
      so plz tell me the best website for understading sales tax.

      thanks

  4. ravi gole says:

    Dear Sir,

    We generate invoice to customer in month of March( forth quarter), can customers issue C form in month of April( first quarter)

    Thanking you

    Ravi Goel

  5. Salman says:

    Hello admin.

    I am a student and my income is not taxble.

    But, now few days ago i am started my own home made trainning video. That’s income i think more then 13 Lack’s in a year.

    how much tax should i’ll have to give and should i’ll also have to give sell or service tax. kindly help me.

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  6. tanvi barman says:

    Hello
    I am opening my online website for selling ladies products such as garments cosmetics furnishigns gift items fashion accessories all made in india products I need to apply for sales tax but I have no office will be working from home is there any provision by government f India for people like me who wants to work from home Can I apply for sales tax by providing home address Thanks Tanvi I am living in noida uttar pradesh
    thanks
    Tanvi
    9958679933

  7. Narottam Singh says:

    Sir. me jajana chahta hun ki cooked food par kitna tex lagta he

  8. vidya bhushan says:

    Dear sir,
    i want to know whether someone has to pay any tax for industrial items if it has to be parceled from one state to another via rail.The items are for store stock transfer and are not for sale.

  9. Suresh Nayak says:

    Thanks

  10. m says:

    i want knowlege above which material against 12.50% Vat & which material against 5% vat pl. explain with example

  11. raghav says:

    sir,
    i want to know about how much penalty is imposed in case of non payment of sales tax ??

  12. muktar inamdar says:

    sir,give me guidence on evolution andbasic principales of sales tax and VAT laws

  13. mudassar says:

    sir i am in jalgaon and i found that the many plastic mats are booked from jalgaon to many state throw railway station of bhusaval and companys have no proper tin and vat number show to railway and booked consignment and save money they are not pay sale tax and vat because he do deal with raw billing system and they do all of work throw railway book agent mr arun meghani at railway station bhusaval.

  14. arun says:

    sales tax kitne prakar ke hote h. and kin-kin vastuo pr vat kitne percent h 1%, 4%, 12.5% and service tax kitana h hotel pr

  15. hari shankar says:

    Dear friend,

    I am manufacturing agricultural pumps in tamil nadu,
    I have my branch in Karnataka.
    what is the procedure to trasfer my goods to karnataka branch?
    is there any tax to be paid?
    pls give me a suggestion

    • gaurav singh says:

      no tax is charged on transfer of goods from one branch to another because there is no sale.. and sales tax is charged on SALE OF GOODS.

  16. priya tupsoundare says:

    Hii..I want to work wid sales tax department bt wat should I do for that

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