Sales Tax in India

Sales tax is an indirect tax which is paid to a regulating/ governing body for the sale the sale of goods and services. Sales tax is generally charged in percentage (of the value of the product) at the time of purchase or exchange of goods. The amount/ rate of income tax depend upon the ruling government guidelines and individual policies. Sales tax in general terms means the extra money one needs to pay for purchasing goods and services.

Types of sales tax:

The governments usually follow their own governing principles for categorizing the sales tax; however in most of the countries, there are some universal sales taxes too. Types of sales taxes are listed below:

  • Retail sales tax
  • Wholesale sales tax
  • Manufacturer's sales tax
  • Use tax
  • Value added tax

Sales tax in India:

Taxation is one of the important most reasons for the growth and development of India. In India, we have dual government structure, which means there are two governments at different levels (union level and state level) and each of them follow a separate but inclined taxation policy.

Central Sales Tax Act, 1956:

The taxation laws, rules/ regulations of the sales tax are contained in Central Sales Tax Act which governs taxation of sales in India. According to this act, the central government can collect sales tax which has been paid in the state since the sale has been made in state itself.

State government taxes:

To meet financial requirements, the states need to levy a separate tax on sales on the regulations of the ruling state government which vary from state to state. The VAT (Value Added Tax) levied by states is a huge source of income to state governments. And since there is parity in rates, the price of products varies from state to state.

Sales tax exemptions:

On humanitarian grounds or to avoid double taxation, the state governments offer certain tax exemptions:

  • While resale of goods/ products, sales where there is a genuine state resale certificate, tax is exempted.
  • Sales made to schools or charities are given tax exemptions.
  • Specific essential and local products are exempted from sales tax.

Central board of direct taxes:

Central board of direct taxes is a statutory authority which works under the purview of Central Board Revenue Act and is treated as the apex/ in charge body for administration of taxes in India. Being a division of Finance ministry, it works under the department of Revenue.

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