To set the tax on an item follow below step:
1. goto Master > Item.
2. Then the item view is displayed, then to apply tax on item Click on New button present on the top left of the corner.
3. Then fill all the details related to the item in which you can see the Tax Class field select the value of tax or you can create a new tax class.
or at the time of creating sale/purchase transaction you can apply the tax rate.