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One of the major reforms in the Indian Taxation System is the introduction of
GST, i.e. Goods and Services Tax. It aims at removing the cascading effect, i.e.
double taxation. GST is a tax on value addition, imposed on the production,
distribution and consumption of goods and services. It is commonly
contrasted with Value Added Tax, shortly known as VAT, which is an indirect
tax levied at each stage of manufacture and distribution of goods on the
incremental value.
The primary difference between VAT and GST is that while VAT applies to
the sale of goods, GST applies to the supply of goods and services. So, this
article will make clear, all the doubts and misconceptions, related to the two
types of tax regimes, in India, take a read.
Content: VAT Vs GST
1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion
COMPARISON CHART
BASIS FOR
VAT GST
COMPARISON
DEFINITION OF VAT
In this regime, the tax is levied on the incremental value of the goods, to
eliminate the cascading effect, at different levels of sale. It is a type of
consumption tax, wherein the value addition made by the firm is equal to the
difference between proceeds and the cost of purchases.
It allows the purchaser of the goods to avail input tax credit, i.e. the tax paid
at the previous stage will be deducted from the net tax liability. To avail the
input tax credit under VAT system, every dealer is required to obtain
registration.
DEFINITION OF GST
GST stands for Goods and Services Tax, which is a destination based value
added tax charged on the production, sale and consumption of goods and
services. It is important to note that GST applies to the value addition at each
stage, and no other tax would be levied, which results in the elimination of
cascading effect.
In this system, the supplier of the goods or services is eligible to avail input tax
credit, i.e. the GST paid on the purchase of goods, will be set off against the
GST payable on the supply of goods and services. So, ultimately, the end
consumer, bears the tax imposed by the last supplier in the distribution chain.
There are many indirect taxes, which are subsumed after the introduction of
GST in India, which are as under:
The fundamental differences between VAT and GST are explained, with the
help of following points:
2. While VAT is levied on the sale of goods, in GST the point of taxation is
the supply of goods and services.
3. The registration and payment under VAT regime are performed offline,
whereas GST is completely an online system, wherein the registration,
filing of return and all other function can be performed through a
common GST portal managed by Goods and Services Network (GSTN).
6. In case of the VAT, the seller state collects the revenue, whereas, in
GST, the collection of revenue is done by the consumer state.
1.8. Under VAT system, input tax credit cannot be availed, in case of
interstate sales. For instance: Suppose, on the manufacture of cloth,
central excise duty (CENVAT) is levied and VAT is imposed on its sale
within the state. Although both CENVAT and VAT both are a value-
added tax but set off is not possible because they CENVAT is levied by
the central government, and State Government imposes VAT. Unlike,
GST is based on the principle, ‘one nation one tax’, so input tax credit is
available for the interstate sales.
Conclusion
By and Large, VAT emerged as a reformation to the old sales tax to remove
the cascading effect, to a great extent. Likewise, GST was adopted over the
VAT, which subsumed other taxes, such as excise duty, surcharge, cess, entry
tax and so forth, which also improved the taxation system in India.