2. Project made by:Project made by:
Kashif Naseem 12Kashif Naseem 12
Mohammad Ayub 48Mohammad Ayub 48
Javed 49Javed 49
Manoj 09Manoj 09
Dheraj 10Dheraj 10
project on:project on:
VAT.VAT.
3. What is vat?What is vat?
VAT (value added tax).VAT (value added tax).
VAT is a simple, transparent tax collected on the sale ofVAT is a simple, transparent tax collected on the sale of
goods. From 1 April 2005, India, s state and uniongoods. From 1 April 2005, India, s state and union
territories have decided to introduce VAT in place of salesterritories have decided to introduce VAT in place of sales
tax and related taxes. above a certain turnover ,all alltax and related taxes. above a certain turnover ,all all
business transactions on within a state by individual inbusiness transactions on within a state by individual in
business , partnership and company will be covered bybusiness , partnership and company will be covered by
VAT .it applies to all manufacture ,wholesaler,VAT .it applies to all manufacture ,wholesaler,
distributors ,stockiest and retailer dealing in taxabledistributors ,stockiest and retailer dealing in taxable
goods, by offsetting on inputs against that on output, VATgoods, by offsetting on inputs against that on output, VAT
does away with tax on tax. This includes VAT paid ondoes away with tax on tax. This includes VAT paid on
purchases raw material or goods purchased for resale.purchases raw material or goods purchased for resale.
Claiming your refund known as input tax credit (itc) underClaiming your refund known as input tax credit (itc) under
VAT ensure proper invoicing. The copy the VAT invoice isVAT ensure proper invoicing. The copy the VAT invoice is
needed to claim ITC. Overall, these features of VATneeded to claim ITC. Overall, these features of VAT
encourage disclosure of complete information on businessencourage disclosure of complete information on business
turnoverturnover
4. The chain of the VATThe chain of the VAT
As its name implies, you pay tax to government at every stageAs its name implies, you pay tax to government at every stage
when you add any product. It is a tax paid at every point ofwhen you add any product. It is a tax paid at every point of
transaction. Starting with a raw material right thought to thetransaction. Starting with a raw material right thought to the
final consumer, VAT is paid to by the producer to thefinal consumer, VAT is paid to by the producer to the
manufacturer. After the industrialist turns the raw material intomanufacturer. After the industrialist turns the raw material into
finished products, he pays VAT on the manufactured goodsfinished products, he pays VAT on the manufactured goods
after selling them to the distributor. When the distributor sellafter selling them to the distributor. When the distributor sell
them to the wholesaller,he pays VAT. When the wholesalerthem to the wholesaller,he pays VAT. When the wholesaler
sells them to the retailer, he pay VAT. Finally, when the retailersells them to the retailer, he pay VAT. Finally, when the retailer
sells to the consumer, he pays VAT. in this chain, in this chainsells to the consumer, he pays VAT. in this chain, in this chain
everyone pay the VAT and deduct the VAT already paid wheneveryone pay the VAT and deduct the VAT already paid when
he sell the goods while paying deference in what he has paidhe sell the goods while paying deference in what he has paid
and collected from the next link in the chain. So at every point,and collected from the next link in the chain. So at every point,
the taxpayer collects VAT and pays into the government’s taxthe taxpayer collects VAT and pays into the government’s tax
collector’.collector’.
5. How the VAT differentHow the VAT different
from the sales tax?from the sales tax?
There are the major fiancé between the sales tax and VAT.There are the major fiancé between the sales tax and VAT.
While in sales tax the ultimate consumer tax on same part(s)While in sales tax the ultimate consumer tax on same part(s)
of the product more then once, in VAT, the consumer paysof the product more then once, in VAT, the consumer pays
tax on the value of the entire product only once. Lets take atax on the value of the entire product only once. Lets take a
example of a car which we the sales tax. The carexample of a car which we the sales tax. The car
manufacturer does not manufacture the all parts that is gomanufacturer does not manufacture the all parts that is go
into it. The manufacturer make the body shell and fixes manyinto it. The manufacturer make the body shell and fixes many
defiance auto parts into it-the engine, e gearbox, the radiator,defiance auto parts into it-the engine, e gearbox, the radiator,
the steering wheel, the tyres, the battery and all other parts,the steering wheel, the tyres, the battery and all other parts,
he makes some, buys some and imports others. most inputshe makes some, buys some and imports others. most inputs
are sales tax paid .are sales tax paid .
6. Suppose someone makes the steering wheel or the tyresSuppose someone makes the steering wheel or the tyres
and sales them to the car maker, the sales tax paid onand sales them to the car maker, the sales tax paid on
these parts. When the is made, it uses the part on whichthese parts. When the is made, it uses the part on which
sales tax has already been paid, and when you buy thissales tax has already been paid, and when you buy this
car, you pay sales tax on the value of whole car. Thatcar, you pay sales tax on the value of whole car. That
means if there is a part like the engine, whish was valuedmeans if there is a part like the engine, whish was valued
at Rs 50,000 and the car is valued at 3 lakh, you againat Rs 50,000 and the car is valued at 3 lakh, you again
pay sales tax on Rs 50,000 because that has alreadypay sales tax on Rs 50,000 because that has already
gone into the cost of the car. Thus you pay tax moregone into the cost of the car. Thus you pay tax more
than once. If you look into making of the engine, thenthan once. If you look into making of the engine, then
you realise that the engine manufacturer paid sales taxyou realise that the engine manufacturer paid sales tax
on the steel that was used to make the engine. Someon the steel that was used to make the engine. Some
times you end up paying more then one tax as well.times you end up paying more then one tax as well.
Thus you are paying more taxes under sales tax. But notThus you are paying more taxes under sales tax. But not
under VAT.under VAT.
7. Under VAT, everyone who buy a product pay thisUnder VAT, everyone who buy a product pay this
tax. After adding value to it, he sells to his buyer.tax. After adding value to it, he sells to his buyer.
The seller adds VAT and collects it from the buyer.The seller adds VAT and collects it from the buyer.
After period of time, the trader fills up the VATAfter period of time, the trader fills up the VAT
return, deduct the VAT he has paid to his supplier,return, deduct the VAT he has paid to his supplier,
and pay the deference (or the tax on the value heand pay the deference (or the tax on the value he
ahs added) to the government. This goes down theahs added) to the government. This goes down the
entire chine until it reaches the final costumer orentire chine until it reaches the final costumer or
consumer who pay tax only once all along the line.consumer who pay tax only once all along the line.
Thus VAT reduces the tax paid by the consumer.Thus VAT reduces the tax paid by the consumer.
8. WHAT ARE THE AWHAT ARE THE A
MAIN FEATURE OFMAIN FEATURE OF
VAT?VAT?
The salient features of VAT are:The salient features of VAT are:
An indirect tax payable by the consumer, VAT is a taxAn indirect tax payable by the consumer, VAT is a tax
paid at each point of exchange of goods where value ispaid at each point of exchange of goods where value is
added right from production or import to distributor, theadded right from production or import to distributor, the
wholesaler, the retailer and the final consumer.wholesaler, the retailer and the final consumer.
It is charged on the deference between the price ofIt is charged on the deference between the price of
goods (output) and the cost of purchase or inputs.goods (output) and the cost of purchase or inputs.
At each point of exchange, when value increases, the taxAt each point of exchange, when value increases, the tax
is collected in the form of higher prices. The final consumeris collected in the form of higher prices. The final consumer
bears the whole tax in the same way, as it was when salesbears the whole tax in the same way, as it was when sales
tax was charged at the retail level.tax was charged at the retail level.
9. VAT is user-friendlyVAT is user-friendly
Those, hard to get and harder to fill, sales tax form will be a thingThose, hard to get and harder to fill, sales tax form will be a thing
of the past. Once the basics are learnt, VAT will simplify taxof the past. Once the basics are learnt, VAT will simplify tax
calculation and filling of VAT returns. With tax payable only on thecalculation and filling of VAT returns. With tax payable only on the
value added calculating the tax amount will become easier. Justvalue added calculating the tax amount will become easier. Just
calculate the difference on your purchases and sales during thecalculate the difference on your purchases and sales during the
period of the return you want to file, and you get to know your taxperiod of the return you want to file, and you get to know your tax
payable or how much you can claim your refund. This is self-payable or how much you can claim your refund. This is self-
assessment_how you assess your tax by your self. As simple asassessment_how you assess your tax by your self. As simple as
this.this.
Small dealers with a turnover of less then Rs 5 lakh a year do notSmall dealers with a turnover of less then Rs 5 lakh a year do not
pay any VAT. So they can not complain. The next group of dealerspay any VAT. So they can not complain. The next group of dealers
with a turnover of between five and 50 lakh have two choices: justwith a turnover of between five and 50 lakh have two choices: just
pay one of the cent of the turnover as VAT and there is no need topay one of the cent of the turnover as VAT and there is no need to
keep detailed VAT account books, or register for VAT, if you find itkeep detailed VAT account books, or register for VAT, if you find it
useful for your business.useful for your business.
10. You are automatically resisted for VAT if you are paying sales tax. YourYou are automatically resisted for VAT if you are paying sales tax. Your
sales tax number becomes your VAT number. New registration aresales tax number becomes your VAT number. New registration are
supposed to take less time sales tax registration.supposed to take less time sales tax registration.
Under VAT registration, there no need to get official permission to addUnder VAT registration, there no need to get official permission to add
more goods to your registration certificate (RC) as was the with salesmore goods to your registration certificate (RC) as was the with sales
tax.tax.
uniform tax rate all over India on 550 most traded products.uniform tax rate all over India on 550 most traded products.
Uniform tax rate of tax (VAT) at 12.5 per cent, 4 per cent and 14 perUniform tax rate of tax (VAT) at 12.5 per cent, 4 per cent and 14 per
cent all over the country.cent all over the country.
Opening stock on 1 April can get the refund of sales tax paid on themOpening stock on 1 April can get the refund of sales tax paid on them
as long as purchases made within one year before this date, i ,e afteras long as purchases made within one year before this date, i ,e after
31 march. Any tax paid on unsold stock will be taken as input tax credit31 march. Any tax paid on unsold stock will be taken as input tax credit
and can be adjusted at the time of payment your VAT in the tax return.and can be adjusted at the time of payment your VAT in the tax return.
11. VAT credit will be uniformly allowed for tax paid on purchase within theVAT credit will be uniformly allowed for tax paid on purchase within the
state from the VAT payable by a dealer. Credit will be calculated on astate from the VAT payable by a dealer. Credit will be calculated on a
uniform basis all over the India. This will cover raw material, capitaluniform basis all over the India. This will cover raw material, capital
goods and items purchased for resale by the VAT payerSelf-goods and items purchased for resale by the VAT payerSelf-
assessment by the traders.assessment by the traders.
VAT is relatively simple to administer. Taxpayer don’t have to makeVAT is relatively simple to administer. Taxpayer don’t have to make
frequently trips to the sales tax office. The entire system of sales tax isfrequently trips to the sales tax office. The entire system of sales tax is
outdated and has been replaced by VAT in 130 country.outdated and has been replaced by VAT in 130 country.
No tax inspectors’ harassment. You can file an objection against anyNo tax inspectors’ harassment. You can file an objection against any
VAT order passed by any authority. Ifno decision has been taken onVAT order passed by any authority. Ifno decision has been taken on
your objection within a fixed period, then it is deemed to be in youryour objection within a fixed period, then it is deemed to be in your
favour. Fair, isn’t it?favour. Fair, isn’t it?
Less number of taxes as VAT will abolish many other taxes.Less number of taxes as VAT will abolish many other taxes.
No VAT is payable on exports. Exporters will get tax refunds on theirNo VAT is payable on exports. Exporters will get tax refunds on their
purchase and other inputs.purchase and other inputs.
12. Is VAT good for India?Is VAT good for India?
Yes, VAT IS good for India because.Yes, VAT IS good for India because.
India has become a single common market with no stateIndia has become a single common market with no state
checkpoints for entry of goods and not a market of 28 different statescheckpoints for entry of goods and not a market of 28 different states
and seven union territories. When goods can be transported all overand seven union territories. When goods can be transported all over
India without paying additional state and local. Taxes, their prices isIndia without paying additional state and local. Taxes, their prices is
come down as compare to sales tax. Thus the demand by domesticcome down as compare to sales tax. Thus the demand by domestic
consumer will go up. So industrialists will produce more and expandconsumer will go up. So industrialists will produce more and expand
their factories and create more jobs.their factories and create more jobs.
Indian goods become the cheaper in the world markets as they bearIndian goods become the cheaper in the world markets as they bear
less taxes and so Indian exports will increase. This means moreless taxes and so Indian exports will increase. This means more
industrial expansion and more income.industrial expansion and more income.
With simple and transparent tax laws and administration, there willWith simple and transparent tax laws and administration, there will
be no ‘inspector Raj’ in the future.be no ‘inspector Raj’ in the future.
13. •Wherever VAT has been introduced, the tax collected byWherever VAT has been introduced, the tax collected by
the government rises many times. Haryana was the firstthe government rises many times. Haryana was the first
state to introduce the VAT in 2003 and its revenuestate to introduce the VAT in 2003 and its revenue
increased by 27.5 percent in two year. More revenueincreased by 27.5 percent in two year. More revenue
means more facilities and services for the citizens. Thismeans more facilities and services for the citizens. This
means more roads, bridges, hospitals, schools, and othermeans more roads, bridges, hospitals, schools, and other
facilities for the citizen.facilities for the citizen.
All this result in higher economic growth. It is estimated thatAll this result in higher economic growth. It is estimated that
the Indian economy will grow by up to 2% more per yearthe Indian economy will grow by up to 2% more per year
when VAT is in full use. This means that India will movewhen VAT is in full use. This means that India will move
faster on the road to becoming an economic superpower infaster on the road to becoming an economic superpower in
the world.the world.
14. Basic Rate of the VAT:Basic Rate of the VAT:
Many different rates in the former sales tax structure areMany different rates in the former sales tax structure are
removed with the introduction of VAT. Under the VATremoved with the introduction of VAT. Under the VAT
system, covering about 550 goods, there are only threesystem, covering about 550 goods, there are only three
main VAT rate: 1 per cent, 4 per cent and 12.5 per cent.main VAT rate: 1 per cent, 4 per cent and 12.5 per cent.
The stander VAT rate is 12.5 per cent generally payableThe stander VAT rate is 12.5 per cent generally payable
on most consumer goods. This category is known ason most consumer goods. This category is known as
revenue neutral rate or RNR.revenue neutral rate or RNR.
A 4 per cent VAT is payable on basic necessities,A 4 per cent VAT is payable on basic necessities,
(including medicine and drugs), all industrial and agriculture(including medicine and drugs), all industrial and agriculture
raw material, declared goods and capital goods consistingraw material, declared goods and capital goods consisting
of about 270 items. The 4 per cent VAT rate category hasof about 270 items. The 4 per cent VAT rate category has
the largest number of goods common for all states.the largest number of goods common for all states.
15. Why customers fearWhy customers fear
VAT?VAT?
Customer or consumer fear that prices of allCustomer or consumer fear that prices of all
goods including some farm produce will begoods including some farm produce will be
taxed at a higher rate of 12.5 per cent andtaxed at a higher rate of 12.5 per cent and
other goods such as salt will be taxed.other goods such as salt will be taxed.
A trader or businessmen will charge moreA trader or businessmen will charge more
and blame it on VAT. True, this hasand blame it on VAT. True, this has
happened in some countries when VAT. Washappened in some countries when VAT. Was
first introduced.first introduced.
16. In fact, a short time after VAT is introduced; pricesIn fact, a short time after VAT is introduced; prices
decline as the customers get to know how it works. Thisdecline as the customers get to know how it works. This
is the experience of many countries and is expected tois the experience of many countries and is expected to
be the same in India. Most state in India tax personalbe the same in India. Most state in India tax personal
products such as soaps, shaving creams toothpastesproducts such as soaps, shaving creams toothpastes
etc; at 16 per cent and so their price s will decline.etc; at 16 per cent and so their price s will decline.
Moreover, VAT means that they do not pay cascadingMoreover, VAT means that they do not pay cascading
taxes or tax on amounting to higher taxes as they didtaxes or tax on amounting to higher taxes as they did
under the sales tax system.under the sales tax system.
