An Overview of Value Added Tax in India

VAT in India could be categorized into four main types:

• NIL VAT Rate: Many states of India sold basic commodities without levying any VAT on them. Usually, these commodities were sold by small manufacturers in their most basic or natural form. Example; salt, khadi etc.
• 1% VAT Rate: Products which were extremely expensive fell under this category. The percentage of VAT had to 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 were levied a 1% VAT. Many states in India had fixed the rate for this category at 1%.
• 4-5% VAT Rate: Many goods that were daily consumed fell under this category. In many states commodities like oil, coffee, medicine etc. were charged a 4-5% VAT Rate.
• General VAT Rate: Items which could not be separated into the above categorization fell under the General VAT Rate. In many states, goods like liquor, cigarettes etc. were charged a high VAT Rate of 2.5% to 14-15%.

The main purpose of VAT charges was to equalize the overall tax burden amongst individual taxpayers and manufacturers. VAT in fact improved the taxation process by making it more efficient, equalizing competition and creating an unbiased practice of taxation system, paving the way for GST which subsumed it on 1 July 2017.

The main benefits of Value Added Tax were as follows:

• VAT reduced tax evasion as it was imposed throughout every stage and if an entity evaded the tax liability during one stage then it was caught in the next stage.
• VAT scrapped off a large variety of taxation, as it abolished the turnover tax, a surcharge on sales tax, additional surcharge etc.
• VAT made the tax structure more transparent.
• Overall improvement in tax order.
• VAT generated a higher revenue growth.

VAT Registration Process

Registering under the VAT policy was a must for goods sellers and service providers that earned a turnover of more than Rupees 5 lakhs per annum. Any entity falling under the ‘Rupees 5 lakhs and more category’ had to register for VAT within one’s respective state where the business operation was established. Upon registration, a business entity was given a unique 11-digit registration number (TIN) which was used for every communication regarding VAT and its filing. Since 1 July 2017, dealers instead obtain a GSTIN through GST registration.

Documents required during VAT registration

The following list of documents had to 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 had a series of benefits for trade, consumers, and the government.

• Trade: A consistent rate of VAT boosted trade and the 100% self-assessment cut back the need for taxpayers to constantly visit a tax department officer.
• Consumers: When tax on tax was removed, it reduced the prices of the commodities which were bought by the end consumer.
• Government: With VAT, dealers ended up conducting self-assessment and the resources required for this procedure were less, which eventually resulted in the Revenue Department focusing more towards collecting rather than administering.

VAT payment after sales tax was levied by the India government

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

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