VALUE ADDED TAX Value Added Tax, Popularly Known As

8/14/2019 VALUE ADDED TAX Value Added Tax, Popularly Known As

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VALUE ADDED TAX

Value Added Tax, popularly known as VAT, is a special type of indirect tax in which a sum of money is leviedat a particular stage in the sale of a product or service.

As VAT is imposed on value addition at every single stage there is no incidence of cascading. In this way,the final consumers bear the burden of paying value added tax. This system involves absolute transparency atevery stage of taxation, thereby making the tax system quite comprehensible and simple.

The value added tax system allows for input tax credit, or ITC, on the amount of tax levied at the precedingstage of the value addition chain. The allowance for ITC is normally appropriated from the value added taxliability imposed on the following stage of the sale of the product.

For instance, if a dealer purchases goods for Rs 100 from another dealer and a tax of Rs 10 has been charged inthe bill, and he sells the goods for Rs 120 on which the dealer will charge a tax of Rs 12 at 10 per cent, the tax

payable by the dealer will be only Rs 2, being the difference between the tax collected of Rs 12 and tax alreadypaid on purchases of Rs 10. Thus, the dealer has paid tax at 10 per cent on Rs 20 being the value addition in hishands.

Purchase price - Rs 100Tax paid on purchase - Rs 10 (input tax)Sale price - Rs 120Tax payable on sale price - Rs 12 (output tax)Input tax credit - Rs 10VAT payable - Rs 2

VAT RATES

Items are classified into following categories.

state to state.Each state can notify certain items of their choice as exempt in their state (eg Karnataka hasexempted Paddy, Rice, Wheat, Pulses, seeds, avalakki, pappad, branded bread and bun)

and declared goods.

that do not fall under the preceding classification or attract special rates, i.e.liquors, petrol, diesel, Aviationspirit/turbine fuel.

EXEMPT FROM TAX, primarily natural & unprocessed products . The list of exempted goods varies from

TAXABLE @ 1% (also classified as 'other rate of tax') items like Bullion, articles of Jewellery,precious stones etc.

TAXABLE @ 4% basic necessity items such as drugs & medicines, agricultural and industrial inputs,capital goods,

TAXABLE @ 12.5 % (also classified as standard rate of Tax - RNR i .e. Revenue Neutral Rate), all remaining items


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General Terminologies used in VAT

Term DiscriptionInput Tax This is a Tax paid on purchasesOutput Tax This is a tax charged on sales

Input Credit

The VAT panel,in White Paper has fixed the threshold exemption limit at a maximum of turnover of Rs. 5 Lacs,subject to the discreation of the State Governments to fix any limit within the over all limit of Rs 5 Lacs. Thethreshold limit for small traders falling under composition scheme in the VAT regime has been set at Rs 5 Lacsto Rs 50 Lacs turnover. Traders within this limit can pay a composite VAT rate of Rs. 50 Lacs turnover. Traders

within this limit can pay a composite VAT rate of 0.25% but would not be entitled to input tax credit.

Vat Documents

A Vat Dealer needs to maintain Vat Compliant Invoice, Credit & Debit Notes and also submit statutory Returns ina prescribed fomat, as applicable for the state. The following documents must be maintained.

1. Product is Exempt or Vat payable2. Tax Identification Number (TIN) - registeration details along with sellers' name & address.3. Tax point - date of sale.4. Full items list with Vat break-up including Vat totals.

will have impact on the input credit.All Credit & Debit Notes would require the same information as that on TaxInvoice

Vat Records : The Vat Dealers must maintain the following records.

Stock Records : A complete record of purchase and sales must be maintained of each stock item.

Maunfacturing A/c's : Complete records of raw materials and input purchased along with goods manufactured.

VAT Account : As per specified formats, the VAT accounts must be properly maintained. The VAT Account issummary af all Input Tax paid for purchase and all Output Tax collected on sales to compute the Net VAT

Payable or Input Credit for carry forward.

DealersUnder Vat Act, a dealer with turnover exceeding the threshold limit of 5 lacs must register with VAT authorities.However, a dealer with annual turnover less than the threshold limit need not register under Vat Act and assuch exemption from the purview of Vat Act.

The amount of input Tax that is permittedto be set off against Output Tax

Tax Invoice : A Vat complaint Invoice, called Tax invoice, has to be serially numbered and must be maintained.

Credit & Debit Notes : Details documents of all returns and adjustments have to be maintained since the same


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Dealers Registered under VATA registered retailer falling within the specified limit may opt for composite scheme and thus for registered dealers,the status may be (a) composite dealers (b) registrered dealer

purchases within the state. They are required to pay the difference between Output Tax & Input Tax already paidon purchases. They are required to file statutory returns periodically.

Composite Dealers : A dealer may opt to become dealer if his turnover is within a limit set by the state. Acomposite dealer is required to pay tax on a fixed rate on the turnover of taxable items as as set by the state

and file a simple return annually. The limitation are that they cannot issue Tax Invoice nor they can claim set-off for Input Tax paid by them.

Due Date of VAT Payment

Sl no Month

1 April 20th/30th

2 May 20th

3 June 20th

4 July 20th/31st

5 August 20th

6 September 20th

7 October 20th/31st

8 November 20th9 December 20th

10 January 20th/31st

11 February 20th12 March 20th/25th

Vat collected should be paid within 20th of the following month.However Quarterly VAT Return should be paid as stated above.(i.e. 30th April, 31st July as so on)

Registered Dealers: Registered Dealers can issue a tax invoice and can claim for Input Tax credit for Vat paid on

Vat Payment/Monthly Return


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