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Value Added Tax (VAT) Registration

VAT registration is required for dealers of taxable goods and materials.

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Value Added Tax (VAT)

VAT is a state-level tax levied by state governments in India. It is a form of sales tax and is collected in stages on transactions involving sales of goods. Tax paid on purchases (input tax) is rebated against tax payable on sales (output tax). VAT is levied on sales of all taxable goods, but is not levied if sales of goods are not made in the course of or in furtherance of business. VAT or sales tax is a consumption tax levied on sale of taxable goods and materials. It is a state-specific registration and is applicable to sales within the state as well as interstate sales, where the seller is liable to pay VAT to the state government.

All companies and LLPs dealing with taxable goods and materials should register under VAT if the turnover of the company/LLP from taxable goods is above the exempted limits as prescribed under state VAT rules.

The amount of VAT collected should be paid to the respective state government on a monthly basis. Monthly/Quarterly/Half yearly/Yearly returns should also to be filed for the same.

As the name suggests, this tax is levied on the value added on the product by a dealer. For example, X sells a product at Rs.1,100.00 (including 10% VAT) to Y. Y then adds a margin of Rs.200 and sells the product to the customer at Rs.1,320.00 (i.e.Rs.1,200+10% VAT). Tax liability in this case is follows:

• X to Government - Rs.100.00 (10% of Rs.1,000.00)

• Y to Government - Rs.20.00 (10% of Rs.1,200 – Rs.100)

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Value Added Tax (VAT)

VAT is a state-level tax levied by state governments in India. It is a form of sales tax and is collected in stages on transactions involving sales of goods. Tax paid on purchases (input tax) is rebated against tax payable on sales (output tax). VAT is levied on sales of all taxable goods, but is not levied if sales of goods are not made in the course of or in furtherance of business. VAT or sales tax is a consumption tax levied on sale of taxable goods and materials. It is a state-specific registration and is applicable to sales within the state as well as interstate sales, where the seller is liable to pay VAT to the state government.

Payment of VAT

VAT collected should be paid to the government on a monthly basis.

VAT Returns

Monthly/ quarterly/half yearly/yearly returns should also to be filed for the same.


1. What is VAT?

Value Added Tax (VAT) or sales tax is a consumption tax levied on sale of taxable goods and materials. VAT is a system of tax in which the tax is levied on the value additions, at each stage in the production and distribution with provision of set-off of tax paid on earlier stage. The value added to a product by a business is the sale price charged to its customer, minus the cost of materials and other taxable inputs.

2. Procedure for VAT registration

All companies and LLPs dealing with taxable goods and materials should register under VAT if the turnover of the company/LLP from taxable goods is above the exempted limits as prescribed under the state VAT rules.

VAT registration process differs from state to state. Generally, the applicant has to approach the local VAT office with specified application and required supporting documents. Certificate of Incorproration, company/LLP registration documents such as MOA, AOA, LLP Agreement, Company /LLP PAN, Rent Agreement for the premises, identity and address proof, photos of directors and partners/designated partners are the documents generally called for VAT registration. If the directors and partner are outside to the specified state, a local representative is required to be authorised for VAT-related compliances.

Generally, a refundable deposit of Rs.5,000-25,000 is insisted for VAT registration. Certain states insist on bank gurantees as well.

3. VAT rates

VAT rate differs from product to product and from state to state.

Generally, the VAT rates are 1% on gold, silver, precious metals, gems and precious stones, 4% on essential goods and primary raw materials, 12.5-20% or more on specified items under respective state VAT rules.

4. When is VAT applicable?

The VAT is applicable at every stage of a product's life cycle that adds value to it.

For example, a carpenter purchases raw wood and turns it into a table and then sells the table to a retailer. VAT will be payable on the difference between the sales price of the table and the purchase price of the wood. When the retailer sells the table to a customer, VAT will be payable on the difference between the purchase price from the carpenter and sales price of the table to customer.

5. Who is liable to pay VAT?

VAT is charged at every step in the process of getting goods from the manufacturer to the customer.

When a manufacturer sells products to wholesellers, the wholeseller has to pay VAT to the manufacturer. When a wholeseller sells wholesale items to retailers, retailers must pay VAT to the wholeseller. When you purchase taxable goods from a retailer, you have to pay VAT to the reseller and the reseller have to pay the differrence of tax collected from the customer and that paid to wholeseller to the government.

In the process, the manufacturer, wholeseller and retailer are obligated to pay the difference of VAT collected and already paid at the acquisition of products to the government.

6. When is VAT registration required?

Every manufacturer or importer of goods or dealers having an annual turnover above the specified limits under the respective state VAT rules and every dealer registered under the CST Act. Moreover, any person having occasional transactions in notified goods and any person other than a casual trader and a registered dealer carrying on business temporarily for less than 120 days are required to obtain a registration from the respective states.

7. What is CST Inter-State Sale?

Central Sales Tax (CST) is generally payable on the sale of all goods by a dealer in the course of inter-state trade or commerce or, outside a state or, in the course of import into or export from India.

Inter-state sale means sales that have been made among two or more different states. A sale or purchase shall be deemed to take place in the course of inter-state trade or commerce in the following cases:
• When the sale or purchase occasions the movement of goods from one state to another;
• When the sale is effected by a transfer of documents of title of the goods during their movement from one state to another.

A sale is considered as an inter-state sale even if the buyer and the seller belong to the same state; even if the goods move from one state to another as a result of a contract of sale; or, if the goods are sold while they are in transit by the transfer of documents.

All despatches of goods from one state to another may not result in inter-state sales. There are some instances wherein the goods are moved out of the selling state and yet they are not considered inter-state sales:
• Stock transfer from head office to branch and vice versa
• Import and export sales or purchases
• Sale through commission agent/on account sales
• Delivery of goods for executing works contract

8. What are the documents that are to be maintained under VAT?

Every dealer is required to maintain an account of business activities including value and quantity of goods received, manufactured, sold or otherwise disposed of or held in stock. Further, a manufacturer has to additionally maintain a stock book of raw materials used and finished goods produced.

9. Should the accounts of a VAT dealer be audited?

A VAT dealer is required to get his accounts audited by a Chartered Accountant if his annual turnover exceeds the limits specified under respective state VAT rules.

10. How does VAT differ from Sales Tax?

Sales tax is single point levy as against multiple point levy under VAT with set off provisions being available for tax paid at an earlier stage. In sales tax, no tax is being levied on the value additions on subsequent sales.

11. How does VAT work?

Under VAT, tax is paid at each stage of the sale, the value addition is taxed and set off of the tax paid in the state at an earlier stage (input tax) is granted against subsequent sales (output tax). Thus, VAT eliminates tax cascading.
The net tax payable by a VAT dealer under the VAT Act would be equivalent to the difference of output tax minus input tax credit available.
"Output tax" means the tax charged or chargeable under this Act by a registered dealer in respect of the sale of goods in the course of his business.
"Input tax" means tax paid or payable by a registered dealer in the course of business, on the purchase of any goods made from a registered dealer.

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