How to Register for VAT in India

In this article “How to Register for VAT in India” we tried to solve most of your queries like

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disadvantages of vat,
features of vat,
explain the advantages and disadvantages of the vat,
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objectives of value added tax,
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We covered all of these queries in detail in below article.

What is VAT?

Value Added Tax (VAT) enrollment or TIN number is required for all entities associated with the sale of products as well as goods. VAT laws are special and unique to each State.

VAT Registration

Value Added Tax (VAT) Registration is a tax registration needed for companies trading or making or manufacturing products in India. VAT Registration OR enrollment is actually replaced the Sales Tax in India and is synonymous with CST Registration and TIN Registration. VAT is a multi-stage tax obligation with the arrangement to enable ‘Input Tax Credit (ITC)’ on tax obligation at an earlier stage, which could be appropriated versus against the VAT liability on subsequent sale. For that reason, VAT is inevitably borne by the consumer.

VAT is usually collected and also governed by the State Government, so each State Government in India has distinct regulations applicable for their State based on the kind of products manufactured or sold. Therefore, it is important for any type of company associated with the manufacturing or trading of products to examine the VAT rates appropriate for the goods they market in their state and adhere to the relevant policy. VAT Registration is required and some time mandatory in many states for business traders or manufacturers having a turnover of more than Rs.5 lakhs per year (Rs.10 lakhs in some states). Therefore, manufactures or traders need to be aware of the appropriate state VAT lawand also acquire registration if required. When registered for VAT, the maker or trader is allotted a special 11 figure number which will work as the VAT Number/ TIN Number/ CST Number for business.


Value Added Tax

Value Added Tax (VAT) is a tax obligation imposed on the sales of items or products or goods in India. Manufactures and also traders should obtain VAT Registration number , if they have yearly sales of more than Rs. 5 lakhs (Rs. 10 lakhs in some states).

End Consumer bears VAT

All purchasers of items or goods or products in India should pay VAT. But, at each phase, the person buying the goods is allowed to set-off the VAT paid against the VAT responsibility or liability on subsequent sale. Therefore making the end consumer to pay the VAT.

VAT/ TIN/ CST are the Same

VAT/ TIN/ CST make use of the very same special 11 digit number. So, VAT/ TIN/ CST are the same and also getting VAT Registration from the State authorities will certainly be sufficient as the TIN or CST Registration additionally.

State Level Tax

VAT is established and collected by the State Governments. As a result, each State has a various VAT Regulation based upon the kind of goods sold. As a result, it is good for companies to be aware of the State’s VAT Regulation relevant or applicable to them.

VAT Due Dates

VAT Payments have to be transferred to assigned banks quarterly if business is registered underProprietary Firms or Partnership Firms or LLPs Firms as well as monthly when it comes to various other sort of business entities like Companies. VAT Returns need to be filed every month on the 20th.

NO VAT on Exports

For products exported from India, VAT is not relevant and not applicable. Therefore, merchants of products who are exporting goods are not allowed to pay VAT. But, it is suggested for exporters to getVAT enrollment or VAT registration.

Who is liable to register or sign up for VAT?

Any trading or manufacturing company, whether a Private limited firm or sole proprietorship or a partnership firm , that offers its products is liable to signed up or registered for VAT.

What is the procedure of VAT enrollment or VAT registration?

i. Submit an application for VAT in Form 1 in addition to the following records to the near by VAT office:
– Central Sales Tax registration certification( Form A).
– Professional tax obligation registration certification( Form 2).
– Copy of crucial documents such as the address proof, ID proof of the Proprietor/Partner/Director.
– Four PP dimension photographs of the Proprietor/Partner/Director.
– PAN No. & Bank Account No of the Proprietor/Partner/Director.
– Copy of the rental agreement of business place.
– Details of company tasks and activities.
– Partnership deed (in case of a partnership firm).
– Memorandum of Association as well as Articles of Association (in case of a Private Limited company).
ii. The authorities from the local VAT workplace will check the premises of where you conduct company within a recommended time.
iii. As soon as the inspection is finished, you will need to pay a specified fee to the local office or workplace for your VAT registration.
iv. On payment of the fee, a TIN number will certainly be allocated to you for your business as well as you will also provided the VAT registration Certificate.

An Example of Calculation of VAT in India.

  • End user or Consumer does not have any type of benefit or downside. For him the effect is same in VAT and also in SALES TAX.
  • VAT is a system where the tax is paid on every purchase of an item or product or good based on the value of worth included to it at each stage.
  • Suppose the selling price of producer or manufacturer for product A is Rs.100/- and if 10% is taxable he market it or sell it at Rs.110/- as well as pays Rs.10/- to government as tax . (Suppose he had paid in advance Rs.3/- as tax for the raw material bought to make this goods, he should pay just Rs.7/- at the time of sales. Yet invoicing will certainly be at Rs.110/-).
  • The cost of supplier for the product is Rs.100 as material cost + Rs.10 as tax paid. When the supplier or distributor sell this product with a profit margin of Rs.20 to the retailerthe cost is (Rs.100+ Rs.20) + 10% tax. So tax is Rs.12. Net selling price of the product now becomes as 100 +20 +12 = Rs.132. Currently the supplier needs to pay Rs.2 as tax to the government. (That is the tax on the profit revenue margin he makes).
  • By now the government obtain a complete tax of Rs.12 (ie, Rs.10 + Rs.2).
    For the retailer the price of purchase or acquisition is Rs.120 as price of product or item and Rs.12 as tax paid.
  • If the retailer market this product at Rs.200 taking a margin of Rs.80 on material cost. He will certainly be billing to the end user or customer (you and also me) Rs.200 +10% tax ie. Rs.20. So finally the consumer buy it at Rs.220.
  • Out of the Rs.20 gathered by the retailer as tax he has to pay Rs.8 as tax to the government.
  • VAT is a system Value additions are strained or taxed at every stage. Advantage to government is that also for the things continuing to be in stock with distributor, as well as retailer the government has actually currently received part of its tax. When it comes to straight SALES TAX government gets tax only at the time of last billing to the customer.
  • Disadvantage to the supplier and also dealerships is that they need to pay tax obligation ahead of time. They could not wait till the last purchase of goods to the end customer. An additional downside is that they have to take far better care about accounting the transactions.

Advantages and Disadvantages of the VAT

Advantages of VAT:

1. As compared to other taxes, there is a less chance of tax evasion. VAT minimizes tax evasion due to its catch-up effect.
2. VAT is simple to administer as compared to other indirect tax.
3. VAT is transparent and has minimum burden to consumers as it is collected in small fragments at various stages of production and distribution.
4. VAT is based on value added not on total price. So, price does not increases as a result of VAT.
5. There is mass participation of taxpayers.
6.No exemption of taxes for anyone.
7.No Cascading(tax on tax) Effect.

Disadvantages of VAT:

1. VAT is costly to implement as it is based on full billing system.
2. VAT is relatively complex to understand. The calculation of value added in every stage is not an easy task.
3. To implement the VAT successfully, customers, need to be conscious, otherwise tax evasion will be widespread.
4.Each state has a different VAT charge since VAT is state levied. An item found here, might be little cheaper else where
5.Cause Inflation,
6.Refund of Tax(VAT credit can not be availed if no is payable on final product being exempt or taxable at lower rate.)
8.Increase in Investment
9.Non-availability of credit for tax paid on interstate purchases in initial years.

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