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Taxation - Sales Tax
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.
The power
to levy Sales tax :
1. No state can levy sales tax on any sale or
purchase where such sale or purchase takes place (a) outside the
state and (b) in the course of import of goods into or export of
goods outside India.
2. Only the parliament can levy tax on inter-state sale or purchase
of goods
Main Principles in State Sales Tax Laws :
1. A sale or purchase of goods is said to take
place when the transfer of property in the existing goods or future
goods takes place for consideration of money.
2. The goods have been divided into different categories and different
rates of sales tax are charged for different categories of goods.
3. In most of the cases related to the sales tax, the tax on the
sale or purchase of goods is at single point.
4. Under the provisions of some state laws the assesses are divided
into several categories such as manufacturer, dealer, selling agent
etc. and such as assess is required to obtain a registration certificate
to that effect. The sales tax or the purchase tax is levied on that
assessee on the basis of his category such as dealer, manufacturer
etc. on production of certain forms or certificates (and differential
rates of sales tax are levied).
5. Generally , a quarter return of sales or purchases is insisted
upon and the assessee is required to furnish the return in the prescribed
form.
6. At the time of assessment, the assessee has to furnish all the
documentary evidence and satisfy the concerned sales tax / commercial
tax officer.
7. The sales tax laws of the states prescribe the procedure to be
followed in case an assessee prefers to make an appeal.
8. Every dealer should apply for registration and obtain a registration
certificate to that effect. The registration certificate number
should be quoted in all the bill / cash memos.
Inter State Trade or Commerce :
A sale or purchase of goods shall be deemed to
take place in the course of interstate trade or commerce if the
sale or purchase--
a) occasions the movement of goods from one state to another
b) is effected by a transfer of documents of title to the goods
during their movement from one state to another
Transactions not amounting to inter-state sales
:
Not all despatches of goods from one state to
another result in inter state sales rather the movement must be
on account of a covenant or incident of the contract of sales. There
are some instances wherein the goods are moved out of the selling
state and yet they are not considered inter state sales :-
- Intra-state sales
- Stock transfer from head office to branch & vice versa
- Import and Export sales or purchases
- Sale through commission agent / on account sales
- Delivery of Goods for executing works contract
Sales Tax ID
number :
A state sales tax ID number is basically a business version of your
Social Security number under which you collect and pay tax for any
service or product you sell that qualifies for taxation in your state.
The state department of taxation provides sales tax ID numbers and
it takes about a month to get one.
The rule of thumb for sales tax is that most services are exempt and
most products are taxable except for food and drugs. However, states
have been gradually adding to the list of services that are taxable
for the last few years. Check with your state department of taxation
to determine if the product or service you sell is taxable in your
state.
Exception in the sales taxes :
- Sales to resellers such as wholesalers and retailers that have a valid state resale
certificate.
- Sales to tax-exempt institutions such as schools or charities.
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