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Sales Tax Laws in India

The tax imposed on the sale and purchase of goods within the state is called Sales Tax. Different states have different sales tax laws for their states.

What is Sales Tax? Sales tax is a form of indirect tax imposed on the sale and purchase of goods within India. The seller of the goods can recover sales tax from the purchaser. It is levied by the Government. Sales tax is charged at both the levels of Legislation, Central and State. The tax imposed by the Central Government is known as the Central Sales Tax, whereas tax imposed by the states is called Sales Tax.

The Central Sales Tax (CST) is charged by the Central Government for the interstate transfers, for instance, goods transferred from Gujarat to Maharashtra. The Central Sales Tax Act, 1956 governs the provisions for administering and levy of Central Sales Tax. Any transfer within the state or export or import of any goods does not come under the purview of CST. The primary objectives for imposition such taxes are as under:

  • A smooth functioning of collection and levy of taxes for interstate sales and purchases,
  • Classification of goods as per their importance.
  • Division of duties by delegating the functions to competent authorities.
  • Simplify the procedure for continuous revenue collection

The tax rates for Central Sales Tax are as under

CST is levied at 2%, provided purchasing dealer issues Form C. In case no Form C is released, then the CST will be charged at the imposed VAT rate applicable in the state of the dealer selling the goods. With the implementation of Goods and Service Tax (GST), it is expected that CST will vanish.

On the other hand, sales tax is different for different states. Each state has its provisions and rules for imposition and collection of sales tax. Thus, it can be said that the biggest source of revenue for the states is the Sales Tax Acts. The State Governments meet its financial requirements through it. Sales Tax is imposed on the sale and purchase of goods within a particular state. Every dealer needs to pay sales tax on the sale of goods even if no tax liability arises as per the tax laws of that state.

There is no fixed tax rate for the sales tax as different Sales Tax Acts govern various states. For instance, cosmetics products are imposed with high sales tax rates. Whereas, the sale of goods which are imported and sale through export is excluded from the levy of sales tax.

Many states have replaced the imposition of sales tax with Value Added Tax (VAT). VAT was levied to make the taxation process simpler and prevent from tax evasion.