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Sales Tax, Value Added Tax, and Good and Services Tax

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Topics

definition

  • Sales tax (ST): Sales tax (ST) is charged by the government on the sale of an item.
  • Value-added tax: A value-added tax, known in some countries as a goods and services tax, is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer, except a business is the end consumer which will reclaim this input value.
  • Goods and Services Tax (GST): Goods and Services Tax is an indirect tax used in India on the supply of goods and services.

formula

  • Sales tax = Tax % of Bill Amount

notes

Sales Tax, Value-added tax, Goods and Services Tax:

  • Sales tax (ST) is charged by the government on the sale of an item. It is collected by the shopkeeper from the customer and given to the government. This is, therefore, always on the selling price of an item and is added to the value of the bill.
    Sales tax = Tax % of Bill Amount

  • A value-added tax, known in some countries as a goods and services tax, is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer, except a business is the end consumer which will reclaim this input value. It is similar to and is often compared to a sales tax.

  • Goods and Services Tax (GST) is an indirect tax used in India on the supply of goods and services. Goods and services are divided into five different tax slabs for collection of tax - 0%, 5%, 12%, 18% and 28%. However, petroleum products, alcoholic drinks, and electricity are not taxed under GST and instead are taxed separately by the individual state governments, as per the previous tax system.  From July 1, 2017, the Government of India introduced GST. The tax came into effect from 1 July 2017 through the implementation of the One Hundred and First Amendment of the Constitution of India by the Indian government. The GST replaced existing multiple taxes levied by the central and state governments. The tax rates, rules, and regulations are governed by the GST Council which consists of the finance ministers of the central government and all the states.

Example

The cost of a pair of roller skates at a shop was Rs. 450. The sales tax charged was
5%. Find the bill amount.
On ₹ 100, the tax paid was ₹ 5.
On ₹ 450, the tax paid would be = ₹ `5/100 xx 450` = ₹ 22.50
Bill amount = Cost of item + Sales tax
= ₹ 450 + ₹ 22.50
= ₹ 472.50.

Example

Waheeda bought an air cooler for ₹ 3300 including a tax of 10%. Find the price of the air cooler before VAT was added.

The price includes the VAT, i.e., the value-added tax. Thus, a 10% VAT means if the price without VAT is ₹ 100 then the price including VAT is ₹ 110.
Now, when price including VAT is ₹ 110, original price is ₹ 100.
Hence when price including tax is ₹ 3300, the original price
= ₹ `100/110 xx 3300`
= ₹ 3000.

Example

Salim bought an article for ₹ 784 which included GST of 12%. What is the price of the article before GST was added?
Let the original price of the article be ₹ 100. GST = 12%.
Price after GST is included = ₹ (100 + 12) = ₹ 112
When the selling price is ₹ 112 than the original price = ₹ 100.
When the selling price is ₹ 784, then the original price
= ₹ `100/112 xx 784`
= ₹ 700.
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