VAT and Sales Tax Calculation in India

VAT and sales tax are different concepts and levied separately, hence kept separate. Unlike sales tax calculations which are quite simple and easy, VAT is multi level tax and more complex to be calculated. Sales tax is calculated on the final price of the article at the time of purchase, hence has a simple calculation.

Difference between sales tax and VAT are discussed below:

  • While sales tax is levied only on consumers, VAT is levied on both consumers and producers.
  • VAT is multi stage tax levied on different steps of production however sales tax is levied in the final stage when the goods are being sold.
  • Calculation of sales tax is simpler than that of VAT in which multi level taxation is being taken care of.
  • VAT is transparent since it is levied in stages, which is not there in the case of sales tax where frauds can be done.
  • In VAT, the tax burden can be shifted by the producer from his shoulders to consumers' which may ultimately lead to overburdening the consumer.
  • VAT generates more revenue than sales tax due to its efficiency.

Calculation

Sales tax = cost of item* sales tax rate

For example, if Mr. Awasthi buys a box of biscuits costing Rs 600with a sales tax component of 15%, then the total sales tax paid by him will be: 600*0.15 = 90

While calculating sales tax, some points need to be remembered:

  • Rate of sales tax varies from state to state and one needs to know the prevalent rate in the concerned state and city.
  • Sales tax is given in percentage.
  • For multiple items, add the prices of all the items before calculations.
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