Entry Tax in India: Rates and Refund of Entry Tax

Good transfer from one state to another is common in the Indian business market. The Indian Government's effort to record the movement of resources across the country came in the form of entry tax in 2000. A state levies this tax when it receives goods from another state for business.

Are you trying to expand your business by expanding to a new state? Learn all about entry taxes with this article before doing so!

Team Digit

What Is Entry Tax?

The Indian Government has set some employment laws and regulations to control business activities. The entry tax keeps track of the goods and services transferred from one state to another. All goods brought in a state for citizens' consumption, sale, and usage levy this tax. As exporting products has always been a common thing in India, the Indian Government took the initiative to record the trade movement with the help of this tax.

Thus, if someone wonders, “what is entry tax?” the answer is connected to inter-state trading. However, some goods are exempted from paying this tax in selective cases. These cases include -

Goods that are sold within the state and VAT is paid upon them
Those that are sold outside the state
Goods outside the category of entry tax goods.
Items connected to works contract whereby the property is transferred to the buyer

What Are the Rates of Entry Tax?

There are no fixed entry tax rates, as it is different based on the requirements of various states. Moreover, each state also has options of multiple product categories, and the Government imposed tax at different rates based on the same. The Madhya Pradesh Government, for instance, imposes about 4% entry tax upon electronic products and 15% on vehicles. On the other hand, the Goa Government imposes about 12.5% of the entry tax on electronics and motor vehicles.

The various state entry tax rates have been specified under Schedule II and Schedule III of the Entry Tax Act, 1967. Serial No. 3 of Schedule II states that aside from iron and steel, other products ready for consumption or use as raw materials to manufacture other goods shall be liable to pay 1% of entry tax. However, this rate is changeable considering the addition of new subsections in this schedule.

What Is the Entry Tax Liability in Different States?

Exporting goods from one part of India to another has become a regular affair. The importance of entry tax payment is evident from the imposition of different rates by various State Governments. The goods importing the products from another state to the state concerned is liable to pay the entry tax. In Odisha, for instance, the entry tax liability does not exceed 12%. However, in Madhya Pradesh, the tax rate might reach about 15% on selected items such as electronics and automobiles.

The concepts of TDS, GST and Deferred taxes might be helpful to analyse the entry tax meaning further. Individual workers are usually liable to pay Tax Deducted at Source (TDS) and organisations pay it to the government after deducting from the employee salaries. Moreover, in the case of importing and exporting, the TDS deduction entry is included in the invoice if the providers or foreign partners do not have establishments in India.

Thus, when inter-state transactions are within India, TDS payment is not mandatory. However, they can keep track of the TDS payable entry and TDS accounting entry based on employees' salaries. On the other hand, deferred tax refers to the income tax amount payable in the future. Therefore, the amount of deferred tax entry for such companies will depend upon the difference between their taxable income and accounting earnings made before paying taxes.

Apart from the entry tax, this calculation gives organisations a wholesome idea of the other taxes they will be liable to pay in the future. In addition, since July 2017, Goods and Service Tax (GST) has been applicable on entry tax. Under this regime, inter-state movement of goods is liable to attract IGST (Integrated GST).

What Is Entry Tax Enforcement?

The Department of Commercial Taxes is mainly responsible for enforcing entry tax. Most states in India have a dedicated team handling this responsibility. They are in charge of overseeing the levy and collecting the entry taxes. They mostly rely on check posts established in the significant boundary crossings of different states. Individuals and business owners liable to pay entry taxes can stop at these check posts to pay them directly. Otherwise, they can also send them to the jurisdictional office of Commercial Taxes within the specified tenure.

What Is Entry Tax Refund?

Business owners moving inter-state with their products can file for an entry tax refund in some cases. It mainly occurs when goods enter a state for return to the owner. In such a case, the people bringing them in can claim for a refund against the tax they paid for the products. However, individuals need to file it within the fixed tenure. They should claim an entry tax refund within a month in most cases. It might, however, vary in different states.

In this regard, businesses can also maintain journals and records for keeping track of their tax refunds. It is helpful to make them look more financially active and help them save more money. Managing income tax refund entry, for instance, allows businesses to avoid spending on income tax, which might not be necessary. Business structures such as sole proprietorships, partnerships and LLCs are prone to keeping tax refund journal entries. This helps them manage the excess tax amounts they remit to the Indian Government.

Which Products Attract Entry Tax?

Various products attract entry tax. However, this might vary from one state to another. Therefore, a few products attracting this tax have been discussed below.

Metals and Stones

In some states, gold and silver ornaments, including coins, bullions and species, attract entry taxes. Moreover, the list also includes precious and semi-precious stones such as diamonds, emeralds, pearls, rubies and sapphires. Other similar notable metals include platinum, rhodium and iridium. There are also state-specific stones, such as Kota stones, popular in Rajasthan and Gujarat.

Oil, Minerals and Gas

Natural gas attracts entry tax in Madhya Pradesh. Light diesel oil and transformer oil are also parts of this category in many states. Crude oil, petrol, diesel, coal and charcoals also attract tax in other states. This tax can also be levied on kerosene oil and furnace oil. Spirit and ethyl alcohol can also attract this tax in some parts.

Electronics

Most types of electronic products are liable to paying entry taxes. These include televisions, refrigerators, air conditioners and coolers, water coolers, computer hardware such as scanners, printers, UPS, modems, etc.

Agricultural Products

These include paddy, wheat and rice in states like Bihar. Moreover, almost all yarns, including cotton, nylon and polyester viscose, can attract entry taxes. Sugar, opium and tobacco also levy this tax in many states. Other products such as raw jute and hay can also attract this tax.

Food Items

Fresh fruits often attract entry tax in many states. Moreover, considering flour and pulses is important while paying this tax. Vegetables, bread and eggs are other food products attracting entry taxes. Furthermore, animal protein such as fish, prawns and meat might also require the payment of such taxes while moving interstate. In addition, it can also be imposed on coffee beans and green tea leaves.

Several other products attract the payment of entry tax while moving from one state to another besides the names mentioned above. Since its inception in 2000, this tax has been mandatory for business owners. They are responsible for complying with the Government's law and paying the tax to avoid legal interruptions in business while expanding their business within India. While this allows companies to prosper legally, the Indian Government can benefit from product movement.

Frequently Asked Questions

All

How is entry tax calculated?

Tax authorities mainly determine this tax when goods enter a new state. It is calculated by considering the difference between the percentage of purchased value of goods (invoice amount including all taxes) and the Central Sales Tax amount paid.

Is entry tax direct or indirect?

Entry tax is a type of indirect tax. It is applicable on products only when moved from one state to another in India.