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Presented By: Puneet Srivastav Himanshu Kuma Shahnawaz Ansa Ankit Vashishth
Meaning of VAT
Value Added Tax (VAT) is nothing but a general
consumption tax that is assessed on the value added to goods & services. It is the indirect tax on the consumption of the goods, paid by its original producers upon the change in goods or upon the transfer of the goods to its ultimate consumers. It is based on the value of the goods, added by the transferor. It is the tax in relation to the difference of the value added by the transferor and not just a profit.
method of sales tax. VAT is basically a tax on sale of good. VAT is payable by seller who is termed as a dealer.
due to unhealthy competition among State by giving sales tax incentives and tax rate war stated to attract more revenue to state. Many steps were taken to remove the distortions and rationalize tax structure since 1999. It was decided to introduce uniform State Level VAT. After lot of persuasion by Central Government, all States ultimately agreed to introduce State Level sales tax Vat at the conference of Chief Ministers all States at Delhi in November,1999.
2003. 20 States introduced VAT 1-4-2005. these includes Assam, Andhra Pradesh, Bihar, Delhi, Goa, Karnataka, Kerala, Maharashtra, Punjab and West Bengal. State ruled by BJP like Gujarat, Chhatisgarh, Jharkhand, Madhya Pradesh and Rajasthan introduced VAT on 1-42006. Tamilnadu introduced VAT on 1-1-2007. Uttar Pradesh introduced VAT 0n 1-1-2008. Uttarakhand has not introduced VAT so far. J&K is out of picture of VAT due to constitutional limitations.
VAT Rates
There are three main rates for Input and Output
Vat tax. 0% for Agriculture products. 1% for Jewellery 4% for Pharma, Computers, Soaps etc. 12.5% for FMCG, Automobile
Compromised VAT
The
VAT system as being introduced is result of deliberations of committee of representatives from 29 states. Each state has its own views and peculiarities. Hence, having uniform nationwide VAT is very difficult and some compromises/ adjustments are inevitable. This has happened while introducing state VAT also. VAT works best when there in uniformity in rate and variation in rates are minimum. However, in State VAT, the variations in rates is much higher. Many products (like petroleum products) are kept out of VAT regime. This is incorrect as per VAT principles.
passes through various manufacturing stages and manufactured product passes through various distribution stages, tax should be levied on the Value Added at each stage and not on the gross sales price. This ensures that same commodity does not get taxed again and there is no cascading effect. In simple term, Value Added means difference between selling price and purchase price. VAT avoids cascading effect of a tax.
Cont.
Basically, VAT is multi-point tax with provision for
granting set off(credit) of the tax paid at the earlier stage. Thus, tax burden is passed on when goods are sold. This process continues till goods are finally consumed. VAT is termed as consumption type tax with distinction principle. VAT works on the principle of tax credit system.
common man or goods used for manufacturer of capital goods or exported goods and charge heavy duty on luxury goods. Administration control is easy due to credit method that can be adopted. It makes no distinction between capital intensive and labour incentive activities. It is in harmony with the destination principle
tax, while the State Government has to provide infrastructure and other facilities for production for which it has to spend huge amounts.
Nature of VAT
International VAT/GST guidelines issued by OECD
(organization for Economic Corporation and Development). Value Added tax systems are designed to tax final consumptions and as such, in most cases it is only consumer who should actually bear the tax burden. Indeed, the levied ultimately, on consumption and not on intermediate transactions between firms, as tax charged on these purchases is, in principle fully deductable. Value added taxes are taxes on consumption paid ultimately by the final consumers.
and reliable.
The elaborate a record keeping is not possible to small
business.
In case of small businesses, a composition scheme is
Contd. Credit of tax paid on capital goods: Credit will be available of tax paid on capital goods purchased
Instant Credit:
Credit of Central Sales Tax(CST) paid on inputs and capital goods purchased from other states will not be available.
Contd
Very few sales tax forms: Most of present sales tax forms will disappear. However,
Contd.
Exemptions and incentives to new industries already granted to continue:
Contd
Entry tax/ Octroi will continue: There is no proposal to extend VAT to entry tax or Octroi levied by local authorities Purchase tax: Though white paper makes no mention of purchase tax, some
States like Keral and Andhra Pradesh have made provision for
imposition of purchase tax when purchase it from unregistered Dealers. Its credit will be available where VAT credit on purchases available.
inclusive of taxes, even if its credit is available, as per section 145A of Income Tax Act.
Purchase a/c should be debited with net amount.VAT credit
Contd
Account of each rate i.e,4%,12.5% etc,is required to be kept
separately.
In case of capital goods, as per AS-10,cost of fixed assets
net amount. Tax payable should be credited to separate account VAT Payable Account.
If any VAT is payable at the end of period,the balance is to be
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