VAT

I/P tax Tax paid on Purchases by Registered dealer

O/P tax Tax paid on sales by Registered dealer

How is VAT different from Sales Tax ?

VAT- Multipoint Sales Tax. Sales tax Levied at the stage of first sale . Successive sale does not attract Sale Tax. However under VAT , tax is levied and collected at every point of sale. (You get tax credit on Purchases)

Consider the chain : ManufacturerWholesaler Retailer

Manufacturer Wholesaler

Retailer

Purchases Sales

100 125

125 150

150 300

Sales tax rate/VAT RATE = 10% Under ST regime , Sales tax payable would be : 10% on 125 = Rs 12.50 Under VAT regime , VAT = (12.05 - 10.00) + (15.00 - 12.50) + (30.00 - 15.00) = Rs 20.00

Thus under VAT , the longer the Distribution chain , greater is the tax amount paid to the government.
Industries to trim down the Distribution channels in order to control prices.

Under VAT regime , CST will not be eliminated immediately.

It will be phased out in phases.

Ex : 2% CST in the first year of VAT introduction

1% CST in the following year

and then no CST.

Thus what would be available would be hybrid VAT and not pure VAT initially.

Under VAT regime , tax base will get widened.

This is because, everyone will try to get credit on his purchases. And to claim credit , you need to have a tax/VAT invoice.

Everyone would demand invoice and thus tax base would get widened.

VAT rates ? 0% - Commodities like Rice , Milk , .

1% - Gold , Silver
4% - Agricultural Inputs Around 10-12% - on all other goods. This rate is called RNR (Revenue Neutral Rate). This is such a rate , that revenue of State government would not diminish , despite ranting tax credit on I/P Purchases.

Sales under VAT can broadly be classified under 3 categories :

Taxable Sales

Exempt Sales

Zero rated sales (Exports)

Tax rate payable = 0%

Tax payable

Tax rate payable = 0%

Can claim I/P tax credit on Purchases

Cannot claim Can claim I/P I/P tax credit on tax credit on Purchases Purchases

Invoices under VAT regime : Tax invoice will contain identity of Seller and Buyer i.e. Name , Address , Registration number Retail invoice will contain identity of Seller alone

On Retail invoice you cannot claim I/P tax credit. Generally issued for small amounts.

How to pay and claim VAT ?

To be paid at the time of monthly returns submission. Will get credit within the same month for VAT paid on Purchases.

Proof required to claim I/P tax credit : Must have a copy of tax invoice

Records to be maintained for the purpose of VAT accounting

Purchase records Details of : -- Purchases from Suppliers who are not registered for VAT

-- Purchases exempt from VAT

-- Imports and Purchases from Other States -- Purchases with VAT rate of 4% -- Purchases with 1 % VAT rate -- Purchases with standard VAT rate.

Sales Records Details of : -- Exempt Sales -- Zero rated sales -- Inter state sales -- Taxable sales at 4%

-- Taxable sales at 1%
-- Taxable sales at Standard rate.

TIN Tax Identification Number for all dealers will be given. It has been suggested that TIN should be a 10 digit code consisting of : 2 digits for State, 3 digits for circle, 4 digits for individual dealer and 1 digit for checking purposes. In another opinion suggested , it would be a 12 digit code. First 10 digits will be PAN of Income Tax and next two digits will be serial number of the dealer Reason for this suggestion is that customs and central excise authorities are already using PAN based registration number for control purposes.