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Sales Tax (Trade tax)

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In order to increase revenue, state governments levy sales tax on the sale of goods within their states. For the inter-state movement of goods, the Union (Central) Government also levies sales tax, known as Central Sales Tax. It is the tax imposed on purchase of items.

The rates of Sales Tax depend upon the nature of goods purchased and are different for different goods. Even different states have different rates of Sales Tax on the same goods. Some items of necessity or of daily use for common persons are completely exempted from Sales Tax.

Terms

Important terms necessary to understand this chapter fully have been explained in our article titled Profit and Loss. One needs to go through Profit and Loss article to understand the terminologies.

Sale Price: It is the price after subtracting discount from the list price. i.e. Sale Price=List price-Discount.

  1. Sales Tax is calculated on the Sale Price.
  2. Sales Tax=
  3. Rate of Sales Tax=

The amount of money of money paid by a customer for an article= The Sale Price of the article + Sales Tax on it.

If P be the printed price of a commodity, the rate of sales tax be r% and S be the selling price then

and Sales Tax=

Illustrative Examples

Example 1: The printed price of a cycle is Rs 4200. The rate of sales tax on it is 10%. Find the price at which the cycle can be purchased.

Solution: Given, Printed Price (P) = Rs 4200

Rate of sales tax =10% i.e. r= 10

Therefore, the cycle can be purchased for Rs 4620.

Example 2: Ms Sinha bought a TV set for Rs 5136 which includes sales tax. If the M.P. of the TV set is Rs 4800, what was the rate of sales tax?

Solution: Given, S= Rs 5136

M.P. = Rs 4800

Sale Price= S-M.P. = Rs (5136-4800) = Rs 336

We know that, sale price=

So, the rate of sales tax was 7%.

Example 3: If the rate of sale tax increases by 5%, the selling price of an article goes up by Rs 40. Find the marked price of the article.

Solution:

Let the M.P. be P and the rate of sales tax be r%.

Then,

When the rate of sales tax increases by 5%,

According to the question,

or,

or,

Therefore, the marked price of the article is Rs 800.

Example 4: Rohit buys a computer for Rs 38400 which includes 10% discount and then 6% sales tax on the listed price. Find the listed price of the computer.

Solution: Let the listed price be P.

Then, the discount = 10% of P=

And, Sales Tax= 6% of P=

Therefore, the price paid=

From the question,

or,

The listed price of the computer= Rs 40000.

Example 5: Smith buys a radio-set for Rs 1696. The rate of sales tax is 6%. He asks the shopkeeper to reduce the price of the radio-set to such an extent that he does not have to pay anything more than Rs 1696 including sales tax. Calculate the reduction needed in the cost price of the radio-set.

Solution: Let the cost of radio-set be reduced to .

According to the given statement,

or,

or,

Therefore, reduction needed=

Example 6: The catalogue price of a computer set is Rs 45000. The shopkeeper gives a discount of 75 on the listed price. He gives a further off-season discount of 4% on the balance. However, sales tax at 85 is charged on the remaining amount. Find (i) the amount of sales tax a customer has to pay, (ii) the final price he has to pay for the computer set.

Solution: Since, P=Rs 45000

Discount= 7% of Rs 45000=Rs 3150

S.P. =List price- discount=Rs (45000-3150) = Rs 41850

Off-season discount=4% of Rs 41850=Rs 1674

Net S.P. =Rs (41850-1674) =Rs 40176

(i) The amount of sales tax a customer has to pay

=8% of Rs 40176

=Rs 3214.08

(ii) The final price the customer has to pay for the computer

=Net S.P. + sales tax

=Rs (40176+3214.08) = Rs 43390.08

Example 7: Ram purchases an article for Rs 7820 which includes 15% rebate on the list price and 15% sales tax on the remaining price. Find the marked price of the article.

Solution: Let the list price be Rs x

Since, rebate=15%

Therefore, Sale Price=

Since, Sales Tax=15%

Therefore, Price paid=

Given:

On solving, we get,

The list price = Rs 8000

Example 8: A shopkeeper buys an article at a rebate of 20 per cent on the list price. He spends Rs 20 on transportation of the article. After charging a sales tax of 6% on the list price, he sells the article at Rs 530. Find his profit percentage.

Solution: Let the list price be

Then, the cost price=

Actual cost price including transportation cost=

Sales Tax=

Therefore, S.P. including sales tax =

Given,

Actual cost price=

Profit = List price- Actual cost price=

Therefore, profit percentage=

Exercise

    1. Rajat purchases a wrist-watch costing Rs 540. The rate of sales tax is 8%. Find the total amount paid by Rajat for the watch.
    2. Ramesh paid Rs 345.60 as sales tax on a purchase of Rs 3840. Find the rate of sales tax.
  2. Manoj purchases a bicycle for Rs 1337.50 including sales tax. If the rate of sales tax is 7%, what is the sale price of the bicycle?
  3. A colour TV set is marked for sale at Rs 17600 inclusive of sales tax at the rate of 10%. Calculate the sales tax on the TV set.
  4. A shopkeeper gives three successive discounts of 20%, 10% and 10% on his goods. If, the list price of an article in his shop is Rs 1600 and sales tax on it is 13% of its sale price, find how much a customer will have to pay for it.
  5. The price of a washing machine, inclusive of sales tax, is Rs 13530. If the sales tax is 10 per cent, find its basic price.
  6. A bicycle is available for Rs 1664 including sales tax. If the list price of the bicycle is Rs 1600, find:
    1. The rate of sales tax.
    2. The price, a customer will pay for the bicycle if the sales tax is increased by 6%.
  7. The catalogue price of an article is Rs 20000. The dealer allows two successive discounts 15% and 10%. He further allows an off-season discount of 10% on the balance. But sales tax at the rate of 10% is charged on the remaining amount. Find:
    1. The sales tax amount a customer has to pay.
    2. The final total price that customer has to pay for the article.
  8. A wholesaler sells an article for Rs 2700 at a discount of 10% on the list price to a retailer. The retailer, in turn, raises the list price of the article by 15% and sells it for Rs 3657 which includes sales tax on the new marked price. Find: (i) the rate of sales tax. (ii) the profit per cent, made by the retailer.
  9. Reena goes to a shop to buy a tape recorder whose listed price is Rs 2568. The sales tax on it is 7% of the price asked for. Reena requests the shopkeeper to give a discount on the listed price so that the price of the tape recorder becomes Rs 2568 after adding sales tax on the price. Find the total discount the shopkeeper has to give on the listed price to sell it at Rs 2568.
  10. A seller buys a suitcase for Rs 2500 and marks up its price. A customer buys the suitcase for Rs 3300 which includes a sales tax of 10% on the marked up price. Find:
    1. The mark-up percentage on the price of the suitcase.
    2. His profit percentage.
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