India vat-2011-vat-gst-essentials

GLOBAL INDIRECT TAX

India
Country VAT/GST Essentials

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VAT

b | India: Country VAT/GST Essentials

© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

India:
Country VAT/GST Essentials

Contents
Scope and Rates 2 Invoices 6
What supplies are liable to VAT? 2 What do I have to show on a tax invoice? 6
What is the standard rate of VAT? 2 Can I issue invoices electronically? 7
Are there any reduced rates, zero rates, or exemptions? 3 Is it possible to operate self-billing? 7

Registration 3 Transfers of Business 7
Who is required to register for Indian VAT? 3 Is there a relief from VAT for the sale of a business
Are there penalties for not registering or late as a going concern? 7
registration? 3 Options to Tax 7
Are there any simplifications that could avoid the Are there any options to tax transactions? 7
need for an overseas company to register for VAT? 4
Head Office and Branch Transactions 8
VAT Grouping 4
How are transactions between head office and
Is VAT grouping possible? 4 branch treated? 8
Can an overseas company be included in a VAT group? 4
Bad Debt 8
Returns 5 Am I able to claim relief for bad debts? 8
How frequently are VAT returns submitted? 5
Anti-Avoidance 8
Are there any other returns that need to be submitted? 5
Is there a general anti-avoidance provision
VAT Recovery 5 under VAT law? 8
Can I recover VAT if I am not registered? 5
Penalty Regime 9
Does your country apply reciprocity rules for reclaims
What is the penalty and interest regime like? 9
submitted by non-established businesses? 5
Are there any items that you cannot recover VAT on? 5

International Supplies of Goods and Services 6
How are exports of goods and services treated? 6
How are goods dealt with on importation? 6
How are services which are brought in from abroad
treated for VAT purposes? 6

All information reflected in this document was obtained/summarized from KPMG in India as of October 2011.


2 | India: Country VAT/GST Essentials

Scope and Rates
What supplies are liable to VAT? What is the standard rate of VAT?
India has a federal structure with both federal and state VAT is generally charged at standard rates, namely
specific indirect tax levies on sale of goods. India introduced 4/5 percent or 12.5/15 percent, depending upon the nature
(in the period 2003–2006) VAT to replace the erstwhile sales of goods. The categories of goods eligible for exemption and
tax regime on sale transactions within the state. The last subject to VAT at 4/5 percent, 12.5/14.5 percent, or higher
state to switch over to the VAT regime with effect from rates vary across states. Further, an additional tax/surcharge
1 January 2008 was Uttar Pradesh. In tandem with the ranging from 0.1 percent to 1 percent is being levied in
above state VAT regime exists another regime namely central certain states such as Punjab, Haryana, Kerela.
sales tax (CST), which is levied on sale of goods occasioning
movement across states. Sale by one taxable person to The definitions and scope of such categories of goods also
another taxable person across states is charged to CST vary across states. Certain categories of goods that are by
at the rate of 2 percent, subject to the condition that the and large common across states are illustrated herein under.
purchaser is able to issue statutory declarations and fulfills
other specified conditions. Alternatively, CST is charged at VAT is charged at 4/5 percent on several categories of goods,
the VAT rate applicable in the originating state. The current including:
tax regime does not envisage recovery of CST incurred on • agricultural implements not operated manually or driven
procurement of goods and hence results in a cost. by animals
VAT is levied on the sale of goods made by a taxable person • communication equipment like PBX or EPABX, etc.
in the course of a business carried on by the said person.
Sale has been defined as transfer of property in goods for • intangible goods like patent, copyright, etc.
valuable consideration. Mere supply of goods may not be • capital goods
charged to VAT. Import of goods into India is not subject
to VAT. Rendition of services is also not subject to VAT, • chemical fertilizers
as services in India are governed at a federal level by an • cotton
independent legislation that is, service tax.
• drugs and medicines
Sale includes transfer of property in goods involved in • iron and Steel
execution of a works contract, transfer of the right to use
goods, and delivery of goods on hire purchase. A works • IT products (including hardware, software,
contract generally means a contract which involves use of telecommunication equipment, etc.)
labor and transfer of material in the course of execution of • industrial inputs (mainly certain basic chemicals and
the contract. minerals)
A taxable person is liable for VAT after turnover of his/her • processed meat, fish, vegetables, and fruits
business reaches the threshold prescribed by the relevant
state VAT legislation. • sports goods
• tractors
• transformers and transmission towers.


India: Country VAT/GST Essentials | 3

Registration
Most other categories of taxable goods are subject to VAT at Who is required to register for Indian VAT?
12.5/15 percent. If a taxable person effects taxable sales within India in
excess of the prescribed VAT registration threshold, the said
However, the aforesaid rates/categorization is very generic
person will be required to register and account for VAT in
and can vary with the changes being brought by the
the state from where such sales are made. The registration
respective state legislations.
threshold varies across states and range between
approximately USD25 to USD25,000 (assuming
Are there any reduced rates, zero rates, or exemptions? USD1 = INR50). However, in most states, if a person brings
goods from outside the state for sale in the state,
• books.
the threshold limit in such cases is zero. Certain states
provide for a voluntary registration even if a taxable person
is below the registration threshold.

However, no registration threshold has been prescribed for
a taxable person effecting interstate sales. Accordingly, a
taxable person is liable to register and account for VAT/CST
after effecting first interstate sale transaction.

Are there penalties for not registering or late
registration?
Yes. There are penalties for failing to register for VAT promptly
which vary across states. The penalties are calculated based
on the net tax due for the period commencing when the
business should have applied for registration and ending on
the date of application. The penalties can be reduced/waived
on establishing a reasonable cause for late registration.



VAT Grouping
Are there any simplifications that could avoid the need Is VAT grouping possible?
for an overseas company to register for VAT? No. There is no provision for VAT grouping. In fact, a taxable
An overseas company is not liable to register for VAT in India person is liable to register and account for VAT separately
unless it has an office in India which is engaged in business in each state from wherever he/she makes taxable sales
of sale of goods. Registration is required where sale is in excess of VAT registration threshold. However, a taxable
effected in India and there are penalties for failing to register person is entitled to apply for single registration and file
for VAT promptly which vary across states. However, where consolidated return for various branches within a particular
there are direct sale from outside India that are not liable to state of operation.
VAT, registration would not required.
Can an overseas company be included in a VAT group?
No.



Returns VAT Recovery
How frequently are VAT returns submitted? Can I recover VAT if I am not registered?
A registered taxable person is liable to file VAT returns in the No. Only registered taxable persons can recover VAT on
respective states. The frequency of VAT returns filing varies goods procured from within the state where he/she is
across states. Further, depending on the category of the registered.
taxable person/turnover or tax liability incurred during the
preceding year or expected during the current year, the VAT
Does your country apply reciprocity rules for reclaims
return filing could be monthly, quarterly, or half-yearly.
submitted by non-established businesses?
Failure to furnish timely VAT returns and settle outstanding No. Refunds are available only to registered taxable persons
VAT payments may result in penalty and interest. The within the state.
provisions for the imposition of penalties and interest vary
across states and depend upon the duration of delay and
Are there any items that you cannot recover VAT on?
the amount of net tax involved. The amount of penalty can
be waived/reduced on demonstration of reasonable cause Yes. Generally, VAT can be recovered on goods procured
for delay. However, charging of interest in case of delay in from within the state for resale, or use in manufacture or
deposit of VAT due is mandatory. processing or packing of goods for sale. In addition, VAT
can also be recovered on capital goods such as plant and
machinery used in manufacture of goods.
Are there any other returns that need to be submitted?
Yes, VAT legislations of most of the states require filing of an Exempt supplies: The VAT paid on supplies which relate
annual return within six to ten months from the completion to exempt sales is not recoverable. Where VAT relates to
of the relevant financial year. both taxable and exempt sales, the taxpayer can recover
proportionate VAT subject to appropriate apportionment.

Negative list: Various state VAT legislations provide for a
negative list of items on which VAT cannot be recovered
(except on resale). The lists of such negative items vary
across states and include:

• motor vehicles
• petroleum products or natural gas used as fuel
• air conditioners installed in office
• office equipment and consumables.



International Supplies of Goods and Services Invoices
How are exports of goods and services treated? What do I have to show on a tax invoice?
Export of goods out of India is zero rated. A taxable person A tax invoice is issued when sales are made to another
can claim refund of VAT paid on inputs used in export of registered taxable person. While the precise format/content
goods, subject to the prescribed requirements. Alternatively, requirements differ across states, in this regard a tax invoice
subject to conditions, a taxable person can also purchase should broadly contain the following information/details:
goods for export without payment of VAT.
• name, address, and registration number (VAT number) of
Similarly, export of services from India is exempt from the seller
service tax, (a separate federal levy on provision of notified
• the word TAX INVOICE mentioned at a prominent place
services), subject to conditions.
• name, address, and VAT number of the buyer
How are goods dealt with on importation? • date of the invoice
No VAT is payable on importation of goods into India. • a pre-printed serialized number
However, customs duty may be payable on such imports.
• description, quantity, volume, unit price, and VAT rate of
each item
How are services which are brought in from abroad
treated for VAT purposes? • total gross amount payable, excluding VAT

No VAT is payable on importation of services into India. • amount and nature of any discount offered
However, service tax may apply under the reverse charge • total amount of VAT payable
mechanism.
• signature of the selling dealer or his/her authorized
representative
• where exempt or zero-rated supplies are included in
the invoice, each such item should be distinguished
separately.
Apart from the above, certain states have prescribed
certain specific requirements such as name of the printer,
time of sale, statutory declaration regarding nature of the
transaction/seller, etc.

In case taxable sales are made to a non-registered person
or taxable person outside the state, generally a retail invoice
is issued. The retail invoice should also contain the above
information/details except that the words retail invoice
should be indicated prominently instead of tax invoice.



Transfers of Business
Can I issue invoices electronically?
Is there a relief from VAT for the sale of a business as a
The invoices can be generated electronically. However, duly going concern?
signed original invoice in paper form has to be issued by the
Yes, if a business is sold as a going concern, VAT may
taxable person to enable the purchasing taxable person to avail
not apply, subject to certain conditions. For example, the
input VAT.
business should be transferred as a whole and the purchaser
should be able to carry on the business by stepping into the
Is it possible to operate self-billing? shoes of the seller. Where part of a business is transferred,
No. then that part of the business should have independent and
separate operations.

Options to Tax
Are there any options to tax transactions?
The VAT legislation in India does not provide for an option
to tax transactions. However, there are alternative schemes
(viz. composition/ad-hoc/normal scheme) for valuation and
payment of VAT in relation to works contract activities.



Head Office and Branch Transactions Anti-Avoidance
How are transactions between head office and branch Is there a general anti-avoidance provision under VAT
treated? law?
The transactions involving supply of goods between head Most VAT legislation in India do not specifically provide
office and a branch or vice versa are not subject to VAT, for a general anti-avoidance provision. However the VAT
subject to conditions and furnishing of prescribed statutory authorities in India may challenge the genuineness of
declarations. the transactions in order to ensure transactions are not
undervalued or underreported in order to evade payment
of VAT.
Bad Debt
Various courts in India have examined this issue on several
Am I able to claim relief for bad debts? occasions. In view of the recent jurisprudence, the VAT
No. The VAT legislations generally in India do not provide for a authorities are required to restrict themselves to the relevant
relief for bad debts. agreements/documentation only and produce legal evidence,
in order to allege the transaction as an artificial device aimed
at avoiding tax. The VAT authorities would not be permitted
to allege the transaction as sham or a device intended to
avoid tax solely on the basis of suspicion or hypothetical
assessment of the underlying motive of the parties. Thus,
the application of anti-avoidance principles has to be
examined on the basis of specific facts of each case.



Penalty Regime
What is the penalty and interest regime like?
VAT legislations in India provide for penalties for
non-compliance.

The penalties are generally computed on the basis of nature
and duration of non-compliance and amount of tax involved.
However, voluntary disclosure of non-compliance generally
mitigates the penalty.

The delay in deposit of VAT attracts mandatory interest which
varies across states and ranges from 15 percent to
24 percent per year.


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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough examination of the particular situation.

© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent
firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to
obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

Designed by Evalueserve.
Publication name: India – Country VAT/GST Essentials
Publication number: 111202
Publication date: January 2012

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