Businesses require the transportation and movement of goods and services from one state to another or within these states. The government has imposed several taxes on transportation and trading of goods and services to use the revenue generated in the country's growth, development, and advancement.
The sales tax is imposed on the end-user only; therefore, several individuals must have their legal documentation to prevent the payment of the sales tax as they are not categorised as the end-users. There are different types of sales tax, several structures of transaction forms, and procedures for filing sales tax. However, these sales taxes are determined on various goods, and the rate of these sales taxes is also different as the state government decides these.
Did you know?
Sales tax is an indirect tax, meaning the tax is paid by the end consumers who purchase the products.
What is Sales Tax?
Sales tax is defined as the tax paid by an individual to purchase or sell a good. These sales taxes are only applicable to specific individuals as the purchasing and trading go through different stages. Therefore, the tax is not liable for every step of the business. Each member involved in the trade and business of a particular item must have their legal documentation, which proves that they are not liable for paying it. The sales tax is paid directly to the governing bodies over the sale of all particular goods and services, including medicines, education, food, etc.
Also Read: GST Explained for Everyone
Types of Sales Tax
The sales tax is applied to the end-user of a particular good and service. Therefore, every purchaser who is not an end-user must have a resale certificate to prevent the tax implementation. The sales tax is categorised into different types based on these minor distinctions. There are five types of sales taxes in general use in India:
- Manufacturers Sales Tax.
- Wholesale Sales Tax.
- Retail Sales Tax.
- Use Tax.
- Value Added Tax.
Sales Tax in India
Sales tax in India was implemented under the Act of Central Sales Tax Act of 1956. Under the influence of this, the government collects tax on different goods transported, traded, or purchased within the states of India. The primary motive behind this sales tax is to contribute to the tariffs in developing and growing the country's economic condition.
Central Sales Tax Act, 1956
The Central Sales Tax Act of 1956 came into existence for providing a proper plan for collecting the tax on several goods and services. These goods and services traded throughout the country need to be implemented with a certain amount of taxation, contributing to the country's growth and development. Therefore, the government had the power to impose a tax on different goods accordingly. The tax may differ based on the state where these goods are sold.
The Inter-State Sales determines the sales tax of the goods and services undertaken within two states, i.e., the transfer of the goods from one state to another, which requires proper legal documentation to prevent the individuals who are not the end-user from paying the sales tax. A dealer must have a resale certificate to avoid implementing these sales taxes.
Central Sales Tax (CST) Transaction Forms
Central sales tax transaction forms are different forms that the government prescribes to the buyers or purchasers to run their business smoothly and seamlessly. These transaction forms give the buyer the authority to implement specific rules and regulations and record the company and trading of the goods and services. Different types of transaction forms are:
- Form C: This form provides a provision to the dealer to get their goods and services at a considerable rate from the seller.
- Form D: This form is meant for the government, the primary purchaser of a particular group.
- Form E1: This form determines an individual as the dealer who is the initial investor in the Inter-State movement of the goods.
- Form E2: This form is issued by any dealer when the trading of the goods is done from one state to another
- Form F: This form determines that a particular good is sold to a different state.
- Form H: This form is implemented by exporters, who are the end purchasers of the good that is being exported.
- Form I: The dealers within the Special Economic Zones issue this variety of the transaction form.
State Government Taxes
The state government holds all the power of implementing a sales tax on certain goods and services. Therefore, every state has its specific tax implementation over the goods, so some goods are notably cheaper in one state than others. Thus, detailed legal documentation is essential for the smooth procedure during trading and business between the states.
Sales Tax Exemption
Tax exemptions are provided to specific individuals who are liable for those conditions. A seller who is not the end-user must not be responsible for paying the sales tax. Therefore, the dealer must have a resale certificate to prevent the implementation of this sales tax. Moreover, the products or goods sold under the authority of a charity, school education institute, etc., will be provided with this sales tax exemption. Various local commodities and a list of several essentials are the categories of the entities that have the provision over the exempted sales tax.
Calculation of Sales Tax
The sales tax calculation is relatively easy as the formulation for evaluating a sales tax is quite simple. The basic formula for calculating a sales tax is the product of the cost of an item, and the sales tax rate will give out the total sales tax amount. Mathematically, it can be expressed as:
Total Sales Tax = Cost of an item x Sales Tax Rate
Also Read: Difference Between VAT and GST
Violation of Sales Tax Rules
Some regulations should be followed while initiating the sales tax. These rules are called the sales tax rules, and many individuals break these laws, intentionally or unintentionally. Some of the common violations that are made by an individual while following these rules are:
- Providing wrong or misleading information.
- Not having the proper registration according to the CST act.
- Violating the security provisions of the CST acts.
- Falsely presenting yourself as a dealer.
- Providing false information regarding the goods that are being purchased.
Sales tax is the tax that is implemented on certain goods and services all over the state to use that contribution to the country's advancement, enhancement, and growth. The sales tax relies on the decision made by the State Government. Therefore, every state has their distinctive sales tax, i.e., the price of the goods will be different in different states. The sales tax is categorised into different groups, and each dealer must have a Central sales tax transaction form as legal documentation for the proper payment of the sales tax.