Sales Tax: Formula, Calculation and Solved Questions

Sales Tax is a percentage charged on the selling price of goods or services. In aptitude questions, tax may be added to a price or included in the displayed price. The main calculations involve finding the tax amount, final selling price, original price before tax, or tax rate using percentage formulas.

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What Is Sales Tax?

Sales tax is an amount charged as a fixed percentage of the pre-tax selling price of a product or service. The buyer pays the selling price plus the calculated tax.

If the pre-tax selling price is P and the tax rate is r%, then sales tax = P × r/100. The price including tax is P + P × r/100, or P(100 + r)/100. For example, if a product costs ₹800 before tax and the tax rate is 5%, tax = ₹40 and the final price = ₹840.

Sales Tax Formula & Tricks

Important Formulas

Sales tax amount
Tax = Pre-tax selling price × Tax rate/100

Use this formula when the selling price before tax and the tax rate are given.

Selling price including tax
Price including tax = Pre-tax price × (100 + Tax rate)/100

This gives the amount paid by the customer after adding sales tax.

Pre-tax price from inclusive price
Pre-tax price = Price including tax × 100/(100 + Tax rate)

Use this when the displayed or paid price already contains the tax.

Tax from an inclusive price
Tax = Price including tax × Tax rate/(100 + Tax rate)

This separates the tax portion from a price that already includes tax.

Tax rate
Tax rate = Tax amount/Pre-tax selling price × 100

The denominator is the price before tax, not the price after tax.

Quick Tricks

Convert an inclusive price directly

If the stated price already includes r% tax, treat the total as (100 + r) parts. The original price is 100 parts and the tax is r parts.

Example: For a price of ₹1,180 including 18% tax, pre-tax price = 1180 × 100/118 = ₹1,000, and tax = ₹180.
Apply discount before tax

When a discount is given on the marked price and tax is charged afterward, first calculate the discounted price and then add tax to it.

Example: A ₹2,000 item with a 10% discount costs ₹1,800 before tax. At 5% tax, the final price is ₹1,890.
Use successive multipliers

A discount of d% followed by tax of t% gives final price = Marked price × (100 − d)/100 × (100 + t)/100.

Example: For ₹1,000, a 20% discount followed by 10% tax gives ₹1,000 × 0.80 × 1.10 = ₹880.

Sales Tax Concepts

Tax Added to the Selling Price

When tax is charged separately, calculate it on the pre-tax selling price and add it to that price.

If the pre-tax price is P and the tax rate is r%, the tax-inclusive price is P(1 + r/100). A tax rate of 12% means the customer pays 112% of the pre-tax price.

Example: For a pre-tax price of ₹1,250 at 12% tax, tax = ₹1,250 × 12/100 = ₹150. The final selling price is ₹1,400.

Tax Included in the Displayed Price

When a price already includes tax, the tax is not calculated by taking the tax rate percentage directly from the total price.

For an inclusive price T and tax rate r%, the pre-tax price is T × 100/(100 + r), while the tax amount is T × r/(100 + r). This is because the total price represents 100 + r percent of the original price.

Example: If ₹2,360 includes 18% tax, the pre-tax price is ₹2,360 × 100/118 = ₹2,000, and the tax is ₹360.

Discount Followed by Sales Tax

If tax is imposed after a discount, calculate the discounted selling price first and apply tax to that reduced price.

For marked price M, discount d%, and tax t%, the final price is M × (100 − d)/100 × (100 + t)/100. Tax is not normally calculated on the original marked price when the question states that the discount occurs first.

Example: For M = ₹3,000, discount = 15%, and tax = 10%, discounted price = ₹2,550. Tax = ₹255, so the final price is ₹2,805.

Profit or Loss When Tax Is Charged

Sales tax collected from the customer is separate from the seller's profit or loss, so compare cost price with the pre-tax selling price unless the question specifies otherwise.

If cost price is C and the pre-tax selling price is P, profit = P − C and profit percentage = (P − C)/C × 100. The tax-inclusive amount is collected for the tax and should not be treated as profit.

Example: If an item costs ₹900 and is sold for ₹1,000 before 5% tax, profit = ₹100, or 100/900 × 100 = 11 1/9%. The customer pays ₹1,050, but the ₹50 tax is not profit.

Sales Tax Video Lessons

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CP, SP, Profit and Loss Formulas

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Practice Sales Tax Questions

Practise published questions related to this topic.

1A wholesaler offers a trade discount of 30% on the marked price of an electric kettle to retailers. A retailer then announces a scheme discount of 12% on the price after receiving the trade discount. If the retailer sells the kettle to a customer for ₹2,464, what is the marked price of the kettle?→ 2A man sells a mobile phone for ₹600 and loses something. If he had sold it for ₹1,180, his gain would have been 3 times the former loss. The cost price (in ₹) of the mobile phone is:→ 3The marked price of an article is (7/5) of the cost price. Its selling price is (6/7) of the marked price. What is the profit percentage?→ 4Selling price of an article is Rs. 510. Loss percentage is 15 percent. What is the cost price of the article?→ 5Find the single equivalent discount (rounded off to two decimal places) for successive discounts of 18%, 6% and 25%.→ 6During a sale, 50% of the goods are sold at 36% profit, 40% of the remaining goods are sold at 14% profit and the still remaining goods are sold at a loss of 21%. If there is an overall profit of x%, then what is the value of x?→ 7A retailer offers the following discount schemes for buyers on an article. Which scheme will be the LEAST beneficial to the customer? i. A discount of 48%. ii. A discount of 31% followed by a discount of 44%. iii. Successive discounts of 32% and 21%.→ 8A shopkeeper announces the following three discount schemes. Which scheme is the most beneficial for the customer? A. Buy 5 items and get 22 identical items free B. Two successive discounts of 13% and 38% C. Two equal successive discounts of 21%→ 9A person earns 30 percent profit on selling price. What is the ratio of the value of the profit to the cost price of the article?→ 10A wholesaler offers two options for a sofa set marked at ₹80,000: either a flat discount of 30% or two successive discounts of 20% and 12%. What is the difference in the selling price between the two options?→

Sales Tax Quick Quiz

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Quick Revision Notes

Sales Tax Revision Points

Use the following rules to solve direct and reverse sales tax calculations.

  • Tax = Pre-tax selling price × tax rate/100.
  • Price including tax = Pre-tax price × (100 + tax rate)/100.
  • For an inclusive price, pre-tax price = Inclusive price × 100/(100 + tax rate).
  • For an inclusive price, tax = Inclusive price × tax rate/(100 + tax rate).
  • Apply a stated discount before tax when the question gives that order.
  • Sales tax collected from the customer is not the seller's profit.
  • Profit percentage is calculated on cost price: profit/cost price × 100.
  • For an inclusive price, do not calculate tax as tax rate percent of the total price.

Sales Tax FAQs

What is the sales tax formula?

Sales tax = Pre-tax selling price × tax rate/100. If the pre-tax price is ₹600 and the rate is 8%, tax = ₹48.

How do you find the selling price with tax?

Selling price with tax = Pre-tax price × (100 + tax rate)/100. A ₹750 price with 12% tax becomes ₹840.

How do you calculate tax from a price that includes 10% tax?

Tax = Inclusive price × 10/110. Thus, the tax in ₹1,100 is ₹100, and the pre-tax price is ₹1,000.

What is the difference between tax-inclusive and tax-exclusive prices?

A tax-exclusive price is before tax, so tax is added to it. A tax-inclusive price already contains tax, so the pre-tax amount is found by multiplying the total by 100/(100 + tax rate).

A product has a 20% discount and 5% sales tax. In what order are they calculated?

Apply the discount first and sales tax afterward if the question states that tax is charged on the discounted price. For ₹1,000, the final price is ₹1,000 × 80/100 × 105/100 = ₹840.

Is sales tax included in profit?

No. Sales tax collected from the buyer is separate from profit. Profit is generally calculated using the pre-tax selling price and cost price.

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