Value Added Tax

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VALUE ADDED TAX (VAT)

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CONTENTS

• VAT Introduction
• Features of VAT
• Advantages of VAT
• Goods on which VAT does not apply
• Reverse Charge

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VAT INTRODUCATION

• Value Added Tax collection is a process of
  levying certain charges on goods, services and
  transaction by a governing authority to provide
  the public services. 
• It is one of the leading powers held by the
  government of India.
• Different types of taxes are applicable at
  various stages of the sale of goods and services
  VAT is one such tax

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VALUE ADDED TAX

• VAT is a kind of tax which levied on the sale of
  goods and services when these goods are
  ultimately sold to the consumer.
• VAT Tax is an integral part of the GDP (Gross
  Domestic Product) of any country.
• VAT is imposed on intrastate sale that is the
  sale of goods within the state. VAT is a tax on
  value addition on the goods.

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• While Value Added Tax is levied on the sale of
  goods, services paid by manufacturers to the
  government, the actual tax is levied on end users
  who purchase these goods.
• Hence, VAT is an indirect tax which is given to
  the government by consumers but via manufacturers
  of goods and services.
• It is a multi-stage tax which is levied at each
  step of production of goods and services which
  involve sale/purchase.

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FEATURES OF VAT

• The Homogeneous (similar) goods and services are
  taxed uniformly. So the similar product from all
  brands will be taxed the same.
• Value Added Tax reduces chances of tax evasion
  and support compliance.
• VAT is levied at each stage of production of a
  good to makes the taxation process easier and
  more transparent.
• Encourages transparency in the sale of goods and
  services at the small-scale level.
• VAT avoids Cascading Effect of Tax.

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ADVANTAGES OF VAT

• It becomes easier to give tax concessions to
  goods used by the common man or products used
  for the manufacture of capital assets or exported
  goods.
• Exports can be freed from domestic trade taxes.
• It provides an instrument of taxing consumption
  of goods and services.
• Interference in market forces is minimum.
• Simplicity and transparency.
• Tax rates can be lower as the tax is levied on
  the retail price and not at the wholesale price.

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GOODS ON WHICH VAT DOES NOT APPLY

• VAT does not apply to the products where price is
  determined by the government intervention such
  goods as follows.
• Petrol, Diesel or other motor spirits.
• Liquor.
• Lottery Tickets.

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REVERSE CHARGE

• Normally, VAT is payable by the seller of goods.
• However, in some cases, the liability is cast on
  the purchaser of goods, known as Reverse
  charge.
• In reverse charge, the service receiver also acts
  as the service provider. He pays tax on services
  received by him. He can avail Cenvat credit of
  tax paid by him since the service is his input
  service.
• There is a provision of tax collection at
  source under section 206C of Income Tax Act.
  Here, the manufacturer or seller of liquor is
  liable to pay tax at source.

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CALCULATION OF VAT

• Value Added Tax is calculated as the difference
  between input tax (Purchase Price) and output
  tax(Sale Price).
•  VAT is known as the tax on value added, or VAT
  Tax as it is imposed on the amount of value
  addition made. 
• VAT Sale Price Purchase Price.

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