What Is Central Sales Tax?

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Central sales tax is a form of sales tax in India. It is similar to the sales tax that governments around the world impose on the sale of manufactured goods as a means of generating revenue. Central sales tax applies to most types of goods Indians buy and sell, but it is often not the only tax that an Indian consumer must pay on a given purchase.

Definition

  • Central sales tax is a sales tax that India's national Union Government imposes. The Union Government has the right to enact central sales tax under the Central Sales Tax Act. The tax applies to imports from other countries as well as goods sold within India. Even though the Union Government sets central sales tax rates and enforces taxation, individual state governments actually receive the tax revenue to fund their operations.

Rates

  • The standard rate for central sales tax is 4 percent of the total sale price. This applies to intrastate sales, which take place entirely within one of India's states, and imports from other countries into an Indian state. Interstate sales incur a central sales tax rate of just 2 percent. In these cases, the state where the sale originates, which is usually the state where the seller is headquartered or located, receives the tax revenue.

Who Pays

  • Consumers and businesses both pay central sales tax in India. However, the tax only applies to goods when they are sold for the first time. When a business buys raw materials and then turns them into manufactured goods, it pays a value-added tax, or VAT. However, when the same business buys finished goods for its operation, it pays central sales tax. Consumers also pay central sales tax on new goods. When Indian businesses and consumers sell used goods to one another, the buyer pays no central sales tax.

Other Taxes

  • Central sales tax is just one of the sales taxes in India. In addition to income taxes and corporate taxes, consumers must also pay local sales taxes. These local taxes include state taxes and taxes from local bodies, which are the smallest local governments. This is similar to the system in many states in the United States, where state and local taxes combine to form the sales tax rate in each community. However, unlike the United States, India has a nationwide sales tax.

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