An Overview of Value Added Tax in India

VAT in India can be categorized into four main types:

• NIL VAT Rate: Many states of India sell basic commodities without levying any VAT on them. Usually, these commodities are sold by small manufacturers in its most basic or natural form. Example; salt, khadi etc.
• 1% VAT Rate: Products which are extremely expensive fall under this category. The percentage of VAT must be kept low for such items else the VAT burden could end up being too high. Items like gold, silver and the rest of the other precious stones are levied a 1% VAT. Many states in India have fixed the rate for this category at 1%.
• 4-5% VAT Rate: Many goods that are daily consumed falls under this category. In many states commodities like oil, coffee, medicine etc. are charged 4-5% VAT Rate.
• General VAT Rate: Items which cannot be separated into the above categorization falls under General VAT Rate. In many states, goods like liquor, cigarettes etc. are charged a high VAT Rate of 2.5% to 14-15%.

The main purpose of VAT charges is to equalize the overall tax burden amongst individual taxpayers and manufacturers. VAT has in fact improved taxation process by making it more efficient, equalizing competition and creating an unbiased practice of taxation system.

The main benefits of Value Added Tax are as follows:

• VAT reduces tax evasion as it is imposed throughout every stage and if an entity evades the tax liability during one stage then it will be caught in the next stage.
• VAT scraps off a large variety of taxation, as it abolishes the turnover tax, a surcharge on sales tax, additional surcharge etc.
• VAT makes the tax structure more transparent.
• Overall improvement in tax order.
• VAT generates a higher revenue growth.

VAT Registration Process

Registering under VAT policy is a must for goods seller and service providers that earn a turnover of more than Rupees 5 lakhs per annum. Any entity falling under the ‘Rupees 5 lakhs and more category’, should register for VAT within one’s respective state where the business operation is established. Upon registration, a business entity is given a unique 11-digit registration number which will be used for every communication regarding VAT and its filing.

Documents required during VAT registration

The following list of documents must be submitted while registering for VAT:

• A copy of the applicant’s PAN card.
• Address proof of the business establishment.
• Identity proof of the promoters.
• An additional security deposit or a surety.

The Benefits of Value Added Tax

Value Added Tax has a series of benefits for trade, consumers, and the government.

• Trade: A consistent rate of VAT will boost trade and the 100% self-assessment will cut back the need for taxpayers to constantly visit a tax department officer.
• Consumers: When taxes on tax is removed, it reduces the prices of the commodity which are bought by the end consumer.
• Government: With VAT, dealers will end up conducting self-assessment and the resources required for this procedure will be less which will eventually result in the Revenue Department focusing more towards collecting rather than administering.

VAT payment after sales tax is levied by the India government

VAT and sales tax are separate segments of taxation as they both work differently from one another. The calculation of sales tax is a simple and easy process but, VAT is multi-faceted or multi-leveled process, making it a more complex form of taxation.

The viable points of differentiation between sales tax and VAT are listed as follows: