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The article explains briefly the sales tax in India, the various governments that impose sales tax and the introduction of VAT.

Sales Tax In India

Sales Tax in India is a form of tax that is imposed by the government on the sale or purchase of a particular commodity within the country. Sales Tax is imposed under both, Central Government (Central Sales Tax) and State Government (Sales Tax) Legislation. Generally, each state follows its own sales tax act and levies tax at various rates. Apart from sales tax, certain states also imposes additional charges like works contracts tax, turnover tax and purchaser tax. Thus, sales tax acts as a major revenue-generator for the various State Governments.

Sales tax is an indirect form of tax, wherein it is the responsibility of the seller of the commodity to collect and recover the tax from the purchaser. Generally, sale of imported items and sales by way of export are not included in the range of commodities which requires payment of sales tax. Moreover, luxury items (like cosmetics) are levied heavier sales tax rates. Central Sales Tax (CST) Act that falls under the direction of the Central Government takes into account all the interstate sales of commodities.

Thus, sales tax is to be paid by every dealer on the sale of any commodity, made by him during inter-state trade or commerce, irrespective of the fact that no liability to pay tax on the sale of goods arises under the tax laws of the appropriate state. He is to pay sales tax to the sales tax authority of the state from which the movement of the commodities commences. However, from April 01, 2005, most of the states in India have supplemented sales tax with a new Value Added Tax (VAT).

The practice of VAT executed by State Governments is applied on each stage of sale, with a particular apparatus of credit for the input VAT paid. VAT in India can be classified under the following tax slabs:
  • 0% for essential commodities
  • 1% on gold ingots and expensive stones
  • 4% on industrial inputs, capital merchandise and commodities of mass consumption
  • 12.5% on other items
  • Variable rates (state-dependent) are applicable for petroleum products, tobacco, liquor etc.

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