SALES TAX

3. About Sales Tax

• Sales tax is a form of tax paid to a governing body for the sale of goods and services.
• Sales tax is an indirect tax and is generally charged at the point of buy or exchange of certain taxable goods, charged as a percentage of the value of the product.
• The sales tax depends on the government in power and the individual policies enforced by it, generally being simple to calculate and collect.
• In simple terms, the sales tax is an extra amount of money paid while purchasing goods or services.

3.1. Types of Sales Tax

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

1. Retail Sales Tax This is a tax charged on the sale of retail goods and is directly paid by the final consumer.
2. Manufacturers' Sales Tax This tax is levied on the manufacturers of certain goods.
3. Wholesale Sales Tax This tax is levied on individuals who deal with the wholesale distribution/sale of manufactured goods.
4. Use Tax This is a tax levied on the consumer for goods which are purchased without sales tax (generally from vendors who are not under the tax jurisdiction).
5. Value Added Tax (VAT) is an additional tax levied on all sales by certain governments.

4. Sales Tax in India

• A major reason for the growth and development of the country can be attributed to the taxes collected by the Government of India.
• India follows the system of a central union government at the Centre and state governments in each state.
• Each government chooses a taxation policy suited to its requirements.

4.1. Central Sale Tax Act, 1956

• This act governs the taxation laws in the country, extending to the entire country and contains the rules and regulations related to sales tax.
• This act allows the central government to collect sales tax on various products.
• The central sales tax is payable in the state where the particular goods are sold.

4.1.2. Objectives of the Central Sales Tax Act

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

1. Provide provision for levying, collection and distribution of taxes collected from the sale of goods through interstate trade.
2. Frame principles to determine when the sale and purchase of goods occurs.
3. Classify certain goods as being of special importance for trade and commerce.
4. Be the competent authority to settle interstate trade disputes.

4.1.3. Sale Price

• Sale price refers to the amount payable to the dealer/trader instead of the goods sold. 
• It includes the cost of packing, insurance charges (if any), incentives to attract buyers and the sales tax paid by the dealer. 
• It does not include cash discounts, installation costs, delivery costs, or goods the buyer exchanges or returns.

5. Inter-State Sales

Interstate sales refer to sales which lead to the movement or transfer of goods from one state to another, achieved by transferring the title documents while the goods are being moved.

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

Example 2:If Anil from Telangana delivers goods to Harish in Gujarat, who in turn sells them to Krishna in Bihar by transferring the documents of title during the transfer of goods from Telangana to Bihar.

6. State Government Taxes

7. Sales Tax Exemptions

• States offer tax emptions in certain cases, which can be humanitarian or to avoid double taxation.
• Sellers with genuine state resale certificates are exempted from tax when they resale products.
• 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.

8. Calculation of Sales Tax

For Example: If Mr Kumar purchases a box of chocolates which cost Rs. 100 and have a sales tax component of 10 per cent then the total sales tax paid by him becomes (100 ×0.10) = 10. Thus, he pays a sales tax of Rs 10 on the product.

For Example: If Mr Kumar purchases a box of chocolates which cost Rs. 100 and has 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.

1. Sales tax might vary from state to state and it pays to be informed of the rate in your particular state and city.
2. Sales tax is calculated as a percentage.
3. Add the prices for multiple items before calculating the sales tax.

9. Violation of Sales Tax Rules

Taxes can sometimes be complicated and an individual might not necessarily realise when he/she violates any provisions of the laws.

1. Providing false and misleading information in the forms.
2. Failing to obtain registration according to the CST Act.
3. Not following the security provisions mentioned in the CST Act.
4. Misappropriation of goods purchased at discounted rates.
5. Falsely impersonating a dealer or projection oneself as a dealer.
6. Unregistered dealers collecting sales tax from consumers is a violation.
7. Providing incorrect statements about purchased goods.

10. Central Board of Direct Taxes

• The Central Board of Direct Taxes is an apex body which is in charge of the administration of taxes in the country.
• It is a statutory 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.

10.1. Composition 

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)

10.2. Functions

• The Central Board of Direct Taxes looks after all issues and matters relating to the country's levy and collection of direct taxes.
• It provides necessary inputs to frame policies for direct taxes
• It is in charge of the administration of direct tax laws in collaboration with the Income Tax Department
• Processes and investigates complaints related to tax evasion.

For Prelims & Mains

Previous Year questions