VALUE ADDED TAX

Value Added Tax, popularly known as ‘VAT’, is a special type of indirect tax in which a sum of money is levied
at 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 at
every 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 preceding
stage of the value addition chain. The allowance for ITC is normally appropriated from the value added tax
liability 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 in
the 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 already
paid on purchases of Rs 10. Thus, the dealer has paid tax at 10 per cent on Rs 20 being the value addition in his
hands.

Purchase price - Rs 100

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

VAT RATES

Items are classified into following categories.

EXEMPT FROM TAX, primarily natural & unprocessed products. The list of exempted goods varies from
state to state.Each state can notify certain items of their choice as exempt in their state (eg Karnataka has
exempted Paddy, Rice, Wheat, Pulses, seeds, avalakki, pappad, branded bread and bun)

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,
and declared goods.

TAXABLE @ 12.5% (also classified as standard rate of Tax - RNR i.e. Revenue Neutral Rate), all remaining items
that do not fall under the preceding classification or attract special rates, i.e.liquors, petrol, diesel, Aviation
spirit/turbine fuel.
 General Terminologies used in VAT

Term Discription
Input Tax This is a Tax paid on purchases
Output Tax This is a tax charged on sales

Input Credit The amount of input Tax that is permitted

to be set off against Output Tax

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. The
threshold limit for small traders falling under composition scheme in the VAT regime has been set at Rs 5 Lacs
to 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 in
a prescribed fomat, as applicable for the state. The following documents must be maintained.

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

1. Product is Exempt or Vat payable

2. 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.

Credit & Debit Notes: Details documents of all returns and adjustments have to be maintained since the same
will have impact on the input credit.All Credit & Debit Notes would require the same information as that on Tax
Invoice

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 is
summary 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.

Dealers
Under 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 as
such exemption from the purview of Vat Act.
Dealers Registered under VAT
A 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

Registered Dealers: Registered Dealers can issue a tax invoice and can claim for Input Tax credit for Vat paid on
purchases within the state. They are required to pay the difference between Output Tax & Input Tax already paid
on 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. A
composite 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

Vat Payment/
Sl no Month
Monthly Return

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 20th
9 December 20th
10 January 20th/31st
11 February 20th
12 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)