To start with the Magento Tax, For New User: You should know the following,
Basic setting for Tax/Vat Configuration
1.Customer Tax Class 2.Product Tax Class 3.Shipping Tax Class 4.Tax Rates 5.Tax Zones
Combine them all and Create Tax Rule, Once done, set default destination.
Brief of above settings:
Customer Tax Class: Customer tax classes are useful to apply the different tax rate to different types of Customer Groups. You can create as many customer tax classes as you need, and assign them to Customer Group.
For Eg: In some Administration, wholesale transactions are not taxed, but retail transactions are. You can associate members of the Wholesale Customer group with the Wholesale tax class.
Product Tax Class: Product Tax Classes are used in calculations to determine the correct tax rate is applied in the shopping cart. When you create a product, it is assigned to a specific tax class. Taxable Goods is a default class in Magento. For example, food might not be taxed, or be taxed at a different rate. That is, You could have different Tax rates on different products such as Clothes, Cosmetics, Medicines, Food Items, home appliances.
Setting up the Product Tax class: Login in Magento Admin Panel Go to Stores > Tax Rules > Add new Rules > Additional Settings
Tax Rule: Important fields to set a Tax Rule 1. Tax Rate: Defines the rate percentage (%) of Tax applied. 2. Customer Tax Class: Defines Tax for Customers. 3. Product Tax Class: Defines Tax for Product. 4. Priority: Prioritize the Tax Rules as in which one to be applied on top of every other one. Tax rates at the same priority are added, others are compounded.
Store > Configuration > Sales > Tax
Order, Invoices, Credit Memos Display Setting: You can set up, what price you want to show in Magento Admin Order, Invoice and Credit Memos (Including Tax, Excluding Tax, Including Tax and Excluding Tax)