Sales Tax In India

Sales tax is levied on the sale of a commodity which is produced or imported and sold for the first time. If the product is sold subsequently without being processed further, it is exempt from sales tax.

Sales tax can be levied either by the Central or State Government, Central Sales tax department. Also, 4 per cent tax is generally levied on all inter-State sales. State sales taxes, that apply on sales made within a State, have rates that range from 4 to 15 per cent. Sales tax is also charged on works contracts in most States and the value of contracts subject to tax and the tax rate vary from State to State. However, exports and services are exempt from sales tax. Sales tax is levied on the seller who recovers it from the customer at the time of sale.

Sales Tax in India is that form of tax which is imposed by the government on sale/purchase of a particular commodity within the country. It is imposed under Central Government (Central Sales Tax) and the State Government (Sales Tax) Legislation. Normally, each state has its own sales tax act and levies the tax at various rates. Apart from sales tax, certain states also impose extra charges such as works contracts tax, turnover tax & purchaser tax. Thus, sales tax plays a major role in acting as a major generator of revenue for the various State Governments.

Under the sales tax which is an indirect form of tax, it is the responsibility of seller of the commodity to collect or recover the tax from the purchaser. Generally, the sale of imported items as well as sale by way of export is not included in the range of commodities that require payment of sales tax. Moreover, luxury items (such as cosmetics) are levied higher sales tax rates. The Central Sales Tax (CST) Act that comes under the direction of Central Government takes into consideration all the interstate sales of commodities.

Hence, we see that sales tax is to be paid by every dealer when he sells any commodity, during inter-state trade or commerce, irrespective of the fact that there may be no liability to pay tax on such a sale of goods under the tax laws of the appropriate state. Sales tax is to be paid to the sales tax authority of the state from which the movement of the commodities starts or commences.

VAT replaces sales tax

However, most of the states in India, from April 01, 2005, have supplemented the sales tax with the new Value Added Tax (VAT). VAT in India is classified under the following tax slabs:

• 0% for the essential commodities
• 1% on gold ingots as well as expensive stones
• 4% on capital merchandise, industrial inputs, and commodities of mass consumption
• 12.5% on all other items
• Variable rates (depending on state) are applicable for tobacco, liquor, petroleum products, etc.

A Central Sales Tax which is at the rate of 4% is also levied on inter-State sales but would be eliminated gradually.

Municipal/Local Taxes

• Octroi/entry tax: Certain municipal jurisdictions levy an Octroi/entry tax on the entry of goods

Other State Taxes

• Stamp duty on the transfer of assets
• Property/building tax that is levied by local bodies
• Agriculture income tax levied by the State Governments on the income from plantations
• Luxury tax that is levied by certain State Government on specified goods

Budget 2009-2010

According to the budget 2009-2010, Central Sales tax is to be reduced to 2% from April