Computation of tax

 INTRODUCTION:

    Every government, be it Central or State government, needs money for administrative expenses, welfare and development schemes, salaries of employees, etc.

      Government collect money (revenue) by leaving taxes within their respective territories. In India, we have two types of taxes : (i) Direct taxes and (ii) Indirect taxes.

       Direct taxes are those that are levied on the income of individuals or organisations. They include income tax and corporate tax.

      Indirect tax are those that are paid by consumers or organisations when they buy goods or services or both.

                             

  COMPUTATION OF TAX:

       Taxes are computed on the cost of purchase of goods or services or both, at a particular percentage pronounced by the government. Percentage of taxes are subject to change as per government decisions from time to time.

       Once the tax rate is given, computation of tax is easy. It involves only simple concepts of percentage. 

                               

        

In order to calculate taxes, we need to know the following important terms:

1. Dealer: A dealer is a person who buys goods/services for re-sale.

2. Cost Price (C.P): It is the price at which a trader buys goods. The cost price is also termed basic price.

3. List Price: It is the price at which an article is marked. List price is also known as marked price (M.P), printed price, quoted price, etc.

4. Discount: In order to sell out the old stock or for some other reason(s), shopkeepers offer certain percentage of the list price as discount. This discount is always calculated on list price.

5. Selling Price (S.P): It is the price at which a trader sells his goods with discount, if any. Selling is also called sale price.

       The selling price= List price - Discount

                                   = Discounted price

When an article is sold without any discount, its selling price= its list price.