What is Sales Tax?
Sales tax is a Consumption Tax levied by the government on the sale of goods and Services. In other words, Sales Tax is an additional amount of money paid based on the percentage (%) of the selling price of goods that are purchased from a good or services. Sales tax is an indirect tax charged at the point of sale of certain taxable goods and services. A conventional sales tax is charged at the point of sale, collected by the retailer and passed on to the government. The trading is liable for sales tax in a given jurisdiction if it has a nexus there, which can be a brick-and-mortar location, an employee, an affiliate, or some other presence, depending on the laws in that jurisdiction.
Types of Sales Tax
The sales tax based on the government in power and the individual policies enforced by it, being simple to calculate and collect. In simple terms, the sales tax is an additional amount of money paid while purchasing goods or services. The sales tax depends on the governing principles accompanied by governments, but there are some universal sales taxes applicable in most countries. Let us take a look at different types of sales taxes are mentioned below.
Retail Sales Tax
Retail Sales Tax is the most common tax people are close with. This Tax is one of the utmost common ways your state & local government generate revenue. Retail Sales Tax is a tax charged on the sale of retail goods and is directly paid by the final consumer. Every time you go to shopping, there is a good chance you are paying retail sales tax.
Vendor Privilege Tax
Vendor Privilege taxes are levied on the retailers for the privilege of doing business within a state. Vendor Privilege Tax differs than a retail sales tax because it is charged to the seller rather than the consumer. Tradings usually have the option of paying this tax out of their pocket or passing it along to customers in the form of higher prices.
Excise Tax is imposed on items that are not considered necessary for survival. Alcohol and Cigarettes usually have an excise tax. The wholesalers pay These taxes. These taxes ultimately increase the price we pay for these items. For example, a bottle of water that usually costs Rs. 50/- may have an excise tax of Rs. 3/- on it. The result is that you will pay Rs 53/- for that bottle of wine.
Alcohol is charged to consumers when the retail sales tax wasn’t charged but probably should have been. You may be responsible for declaring and paying a use tax in your home state when you purchase products from an internet site, catalog, or television network that does not charge retail sales tax in the state in which you live.
Value Added Tax-VAT
VAT is a tax which imposed on the sale of goods and services when these goods are ultimately sold to the consumer. VAT is an integral part of the GDP(Gross Domestic Product) of any country. Value Added Tax is imposed on intrastate sale that is the sale of goods within the state. Value Added Tax is a tax on value addition on the goods.
The idea behind buying wholesale is that taxpayer will resell the items at retail, collect sales tax on the sale and remit the collected taxes to the appropriate agency. You need a valid business reason to get a resale or sales tax number or certificate.
Sales tax rates- Sale Price
Sales rate refers to the amount payable to the dealer or trader in instead of the goods purchased. Sale Price includes the insurance charges (if any), the cost of packing, incentives to attract buyers, and the sales tax paid by the dealer. But Sales rate does not include installation costs, cash discounts, delivery costs and goods exchanged. The Sales Tax Rate(price) in India stands at the rate of 14.5%. Sales Tax Rate in India averaged 12.78% from 2006 until 2015, reaching an all-time high of 14.5% in 2015 and a record low of 12.36% in 2012. In India, Sales Tax Rate is reported by the Ministry of Finance, Government of India.
Sales Tax Exemptions
State government offers sales tax exemption in certain cases to avoid the double taxation. Some of the Sales Tax exemptions are listed below.
- Traders with genuine state resale certificates are exempted from sales tax when they resale products.
- Products sold to charities, schools are entirely exempted from Sales Tax.
- There is a list of essential and local commodities which are exempted from sales tax.
Sales Tax Calculator
Sales Tax might seem like a complicated term to a lot of people and a lot ofÔ we think that calculating it is extremely hard, if not impossible. It is however far from the truth, as calculating sales tax is no Herculean task if one gets the basics right.
Total Sales Tax = Cost of item * Sales tax rate
For Example: if Mr. Wang Jackson purchases a box of cookies which cost Rs. 100/- which have a sales tax component of 10 percent, then the total sales tax paid by him becomes (100 x 0.10) = 10.
Thus, Jackson pays a sales tax of Rs. 10 /- for the product.
There are a few points one needs to remember while calculating sales tax.
- Sales tax might vary from state to state, and it pays to be informed of the rate of your particular state & City.
- Sales tax is calculated in the form of the percentage(%).
- Add the prices for multiple products before calculating the sales tax.
Violation of Sales Tax Rules
Sometimes Taxes can be complicated to figure, and the taxpayer might not necessarily realise any provisions of the laws. Here we are providing some of the most common violations sales tax rules.
- Providing false information or misleading information in the forms.
- Not following the security provisions mentioned in the CST Act.
- Failing to obtain registration according to the CST Act.
- Misappropriation of goods purchased at discounted rates.
- Unregistered dealers collecting sales tax from consumers is a violation.
- Providing incorrect statements about purchased goods.
Central Sales Tax Act, 1956
The Central Sales Tax Act, 1956 controls the taxation laws extending to the entire country. Central Sales Tax contains the rules & regulations related to sales tax in India. CST Act allows the Central Government to levy sales tax on various products. The Central Sales Tax is payable in the state where the particular goods are purchased.
Central Sales Tax Act
The Central Sales Tax Act was composed with the goal to make tax collection simpler and streamlined. The primary aims of CST Act are highlighted here.
- Provide provision for levying, collection, and distribution of taxes collected from the sale of goods through interstate trade.
- Frame principles to determine when sale and purchase of goods occurs.
- Classify certain products as being of particular significance for trade and commerce.
- Be the competent authority to settle interstate trade disputes.