Sales Tax / Central Sales Tax Meaning and Definition, Features29/07/2020
A sales tax is a tax paid to a governing body for the sales of certain goods and services. Usually laws allow the seller to collect funds for the tax from the consumer at the point of purchase. When a tax on goods or services is paid to a governing body directly by a consumer, it is usually called a use tax. Often laws provide for the exemption of certain goods or services from sales and use tax. A value-added tax (VAT) collected on goods and services is like a sales tax.
The indirect tax imposed on selling and purchasing of goods within India is referred to as Sales Tax. It is an additional amount paid over and above the base value of the product being purchased. This tax, usually imposed on the seller by the government, enables the seller to recover the tax from the purchaser. It is usually charged from buyers at the point of purchase or the exchange of some specific goods and is chargeable at a certain percentage of the product value.
Sales Tax is levied by the Central Government as well as State Governments. It is decided by the Central Government basis its tax policies. State Sales Tax laws vary between states.
Central Sales Tax
The following are some of the key features of the Central Sales Tax Act.
- Lays down principles regarding the time of sale and purchase of goods
- Enlists goods that have special importance for trade and commerce
- Lays down regulations regarding charging, collection and distribution of taxes generated from interstate trade
- Holds the final authority for settling interstate trade disputes
State Government Taxes
State Governments in India have the power to decide on Sales Tax policies as per their unique financial requirements. This explains the reason as to why sales taxes vary from state to state. States classify businesses dealing in the sale of goods under three heads – manufacturers, dealers and sellers. Each of them require certificates to operate legally.
Exemptions from Sales Tax
The following categories are exempted from State Sales Tax and are offered to overcome double taxation, or on humanitarian grounds.
- Certain specific goods as per the list of goods that have been exempted by the state government
- Products from sellers with valid state resale certificates
- Products sold for the purpose of charities or educational institutions like schools
Sales Tax Calculation
Sales Tax rate applicable on a particular product can be calculated through a simple formula:
Total Sales Tax = Cost of item x Sales tax rate
While the formula is a simple one, sellers and manufactures need to consider the following while calculating Sales Tax on their goods:
- It is calculated as a percentage
- Be updated on the Sales Tax rate of the state and city that the manufacturer or seller belongs to, as it varies from state to state
Types of Sales Tax
Though countries across geographies have their unique Sales Tax policies, there are certain standard types of sales taxes that are applicable to most countries. They are:
Wholesale Sales Tax: Tax levied on individuals dealing with wholesale distribution of goods is referred to as Wholesale Sales Tax.
Manufacturers’ Sales Tax: Tax charged on manufacturers of some specific goods is known as Manufacturers’ Sales Tax.
Retail Sales Tax: Tax levied on sale of retail goods and directly payable by the final consumer is called Retail Sales Tax.
Use Tax: This is a tax levied on the consumer for goods bought without paying sales tax. This usually holds true when goods are bought from vendors who are not a part of the tax jurisdiction.
Value Added Tax: An additional tax levied by some central governments on all purchases is called the Value Added Tax.