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 goods or services. It was this desire to trade that led to countries embarking on voyages to find new trading partners, eventually changing the entire 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 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 purchase 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 additional amount of money paid while purchasing goods or services.
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. The different types of sales taxes are mentioned below.
- Retail Sales Tax – This is a tax charged on sale of retail goods and is directly paid by the final consumer.
- Manufacturers’ Sales Tax – This tax is levied on the manufacturers of certain goods.
- Wholesale Sales Tax – This tax is levied on individuals who deal with wholesale distribution/sale of manufactured goods.
- 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).
- Value Added Tax – This is an additional 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 Sales Tax 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.
Objectives of Central Sales Tax Act:
The Central Sales Tax Act was formulated with the goal to make tax collection simpler and streamlined. The main objectives of CST Act are highlighted here.
- Provide provision for levying, collection and distribution of taxes collected from sale of goods through interstate trade.
- Frame principles to determine when sale and purchase of goods occurs.
- Classify certain goods as being of special importance for trade and commerce.
- Be the competent authority to settle interstate trade disputes.
Sale price refers to the amount payable to the dealer/trader in lieu 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 and goods exchanged or returned by the buyer.
Inter State Sales:
Inter-state sales refer to sales which lead to 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 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 supply different forms for various purposes, each form being listed below.
- Form C – This form allows the purchasing dealer to get goods at concessional rates from the seller.
- Form D – This is issued by the government department which purchases the goods.
- Form E1 – This is issued by the dealer who initiates the inter-state movement of goods.
- Form E2 – This is issued by the subsequent seller when the goods move from one state to the other.
- Form F – This is issued when the goods are sent to a different state.
- Form H – This is issued by an exporter for the purchase of goods.
- Form I – This is issued by dealers in Special Economic Zones.
State Government Taxes:
Individual State Governments have the power to levy sales tax to meet their financial requirements. The sales tax in different states vary for different products, with Value Added Taxes forming a big 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 associated with sale of goods into manufacturers, sellers and dealers, with each one needing certificates to work under the ambit of the law.
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 are a list of essential and local commodities which are exempted from sales tax.
Calculation of Sales Tax:
Sales Tax might seem like a complicated term to a lot of people and a lot of us 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 x Sales tax rate
For Example: if Mr. Kumar purchases a box of chocolates which cost Rs. 100 which have 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.
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 in your particular state and city.
- Sales tax is calculated as a percentage.
- Add the prices for multiple items before calculating the sales tax.
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. Here are some of the most common violations when it comes to sales tax.
- Providing false and misleading information in the forms.
- Failing to obtain registration according to the CST Act.
- Not following the security provisions mentioned in the CST Act.
- Misappropriation of goods purchased at discounted rates.
- Falsely impersonating a dealer or projection oneself as a dealer.
- Unregistered dealers collecting sales tax from consumers is 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 in charge of 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.
Composition of Central Board of Direct Taxes:
The Central Board of Direct Taxes is composed of the following members.
- Member (Income Tax)
- Member (Legislation and Computerisation)
- Member (Revenue)
- Member (Personnel and Vigilance)
- Member (Investigation)
- Member (Audit and Judicial)
The Central Board of Direct Taxes looks after all issues and matters relating to the levy and collection of direct taxes in the country.
- 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 .
News About Sales Tax
India Panel gathered in New Delhi to set rate for new sales tax
Officials from the State Finance Ministry and Finance Ministry gathered in New Delhi for a 3 day meeting that will finalise the main rate of the GST or Goods and Services Tax and clear the path for its introduction next April. This tax which has been in the works for a long time now would transform the third-largest economy in Asia into a single market for the very first time and is expected to boost revenues through easier compliance and making it simpler for businesses that currently pay a high amount of federal and state levies.
Prime Minister of India, Narendra Modi wants to ensure that doing business in India is easier and said that a tax reform is needed to end the widespread evasion by various businesses and to not allow officials from imposing arbitrary taxes. In the previous month, GST council which is a decision making body comprising of federal and state finance ministers resolved major issues regarding the working of sales tax and also approved draft rules for its collection.
Finance Minister Arun Jaitley, expects to receive parliamentary approval for these bills in the coming month that would set the scope and rate of GST. Each state would also have to approve similar bills in their assemblies.
8th November 2016
Maharashtra Government Expects to Receive Nearly Rs.1 Lakh Sales Tax
The Maharashtra government announced that they are targeting a sales tax collection of Rs 93,000 crore for the financial period of 2016-17. Honorable Chief Minister of Maharashtra, Devendra Fadnavis made an announcement on the annual day for sales tax last Saturday, that the state of Maharashtra has its industrial edge over other states along with what the CM believes to a ‘strong administrative network’ is expected to yield the Govt. more than Rs 1 lakh crore tax with the collection of sales tax in the state within a few years.collection in a few years.
4th October 2016
Issuance of dollar bonds by Indian companies surge sevenfold
The dollar bond sales in India has increased seven times this quarter, and global funds are still looking for more. Indian firms have raised $3.56 billion since July 1st, and this is a record amount considering the sale of bonds since March 2015. Low borrowing costs have been favourable for the record sales. The average yield on debt plunged to 3.81%, a fall of 58 basis points over a period of three months.
The Prime Minister has backed several prominent initiatives in the economy, such as the streamlining of sales tax in the country and ensuring continuity by appointing deputy governor Urjit Patel to lead the RBI. These initiatives have reinforced investor confidence in India. The country also benefits from extended dovish policies of prominent central banks.
The SBI plans to raise $1 billion through securities, while Hindustan Petroleum Corp Ltd. is planning its first sale of either masala bonds or dollar notes. The Delhi International Airport also intends to follow suit.
21st September 2016
Maharashtra initiates processes to regulate direct selling companies
Girish Bapat, Minister for food and civil supplies said that the state would be initiating processes to assume the Union Government’s model guidelines to monitor direct sellers like Amway, Tupperware, Avon, etc. These directions forbid direct selling companies from issuing any registration fee or compelling suppliers to buy back unsold goods. There are also plans to bar e-commerce firms from selling products to customers without the consent of direct sellers. Bapat mentioned that the new guidelines will assist in protecting consumer interests, and the state will strictly implement the proposed directions.
Direct marketing companies have duped several customers and refrained from paying VAT and sales tax, in the past. On September 9th, the Ministry of Consumer Affairs had released guidelines for streamlining the process of direct selling and for providing a clear legislative framework for firms involved in such sales. The regulations mandate these companies to furnish compliance agreements to the consumer affairs department within 90 days.
20th September 2016
VAT And Sales Tax Interest Waiver Scheme Delayed In Gujarat
Gujarat government has put the Value Added Tax (VAT) and Sales Tax Settlement Scheme on the backburner. The scheme would have allowed VAT and sales tax defaulters to pay the principal amount and get a waiver on the interest and penalties.
The scheme was announced in February this year, but no action has been taken on it until now. State Finance Minister Saurabh Patel said the primary draft of the scheme was ready, but it is awaiting legal opinion as there were some ambiguities regarding the scheme.
The scheme was expected to help the government recover more than Rs. 15,000 crore in VAT and sales tax dues.
7th June 2016
Low Tax contribution from Petroleum Sector widens Fiscal Deficits
States facing lower collections can trace the cause back to the petroleum sector. Low contribution of taxes from this sector has resulted in lower state revenues, and has helped increase the widening of their fiscal deficits for the previous year. While the Centre’s tax collection increased drastically following the hike in excise duty on petrol and diesel on more than one occasion, the state’s sales tax and VAT levy on the same products was only a fraction of the price, resulting in much lower collections. As per findings by the Petroleum Planning $ Analysis Cell, the Centre collected Rs 1.35 lakh crore in taxes from April to December 2015, while the state collected Rs 1.18 lakh crore in taxes over the same period.
29th April 2016
India Hits Record Import Duty; Reintroduces Sales Tax
Along with a record high import duty levied on gold, India has, after a period of 4 years, reintroduced a local sales tax on gold jewellery. India’s appetite for gold has remained high and repeated attempts to curb it by successive governments in Asia’s third largest economy has struggled with the task even after levying a heavy import duty of 10% in 2013
Annual imports have reached high numbers and is in the range of up to 1000 tonnes which has led the government to mobilize close to 20,000 tonnes of the metal left idle in homes and temples. A 1% excise duty on gold and diamond jewellery has also been announced by the finance minister, Arun Jaitley
7th March 2016
Congress says Sales Tax should be below 20 per cent
The opposition party Congress has stated that the sales tax rate in the country should ideally be below the mark of 20 per cent. Currently, the goods and services tax or the GST is holding topmost priority in the government’s list for the winter session of the parliament.
The party also wants a structured proposal on the goods and services tax and hopes to reach a consensus with the BJP and allies over the framing of this bill. The bill has been passed in the lower house of the parliament but is pending in the upper house due to a consensus not being reached on the subject. Congress had proposed the GSt when it was in government but further steps could not be taken and the central government changed.
2nd December 2015
GST would replace State Sales Tax
With an April 1st target to implement the nationwide Goods and Services Tax, Prime Minister Narendra Modi has a lot of work to do. This GST would replace state sales tax, making it a beneficial proposition for the government, which hopes to rake in excess money into its treasury. This tax is expected to be in the mid to high teens, aimed to give a push to the economy, propelling it to greater heights and bringing about uniformity in terms of taxes.
20th November 2015
Sales Tax Abolition on ATF can Boost Air Travel
Aviation Turbine Fuel can become free of sales tax which might in turn result in an increase in air travel by around 9%. The abolition of sales tax will result in reduction of ATF cost by about 20% and the overall operating cost by about 7%. This reduction of cost if passed onto customers can boost the air travel industry by about 9%. In India, the cost of jet fuel is 45% more expensive as compared to other neighboring countries. The report that published these figures also talks about how the country ranks the lowest in terms of ease of doing business.
26th October 2015