Value-added taxation in India

The value added tax was introduced as an indirect tax into the Indian taxation system from 1 April 2005. The existing General Sales Tax Laws were replaced with the Value Added Tax Act (2005) and associated VAT Rules. Haryana became the first State in the country that had adopted the taxation on 1 April 2003. Few states Gujarat, Rajasthan, Madhya Pradesh, Chhattisgarh, Jharkhand, Uttarakhand and Uttar Pradesh opted to stay out of VAT taxation system during the initial introduction of VAT, before adopting the VAT at a later date. As of 2 June 2014, VAT has been implemented in all the states & union territories of India

History

OECD (2008, 112–13) cites Chanchal Kumar Sharma (2005) to answer why it has proved so difficult to implement a federal VAT in India. The book quotes:

"Although the implementation of broad-base federal VAT system has been considered as the most desirable consumption tax for India since the early 1990s, such a reform would involve serious problems for the finances of regional governments. In addition, implementing VAT in India in context of current economic reforms would have paradoxical dimensions for Indian federalism. On one hand economic reforms have led to decentralization of expenditure responsibilities, which in turn demands more decentralization of revenue raising power if fiscal accountability is to be maintained. On the other hand, implementing VAT (to make India a single integrated market) would lead to revenue losses for the States and reduce their autonomy indicating greater centralization" (Sharma, 2005, as quoted in OECD, 2008, 112–13)

Chanchal Kumar Sharma (2005:929) asserts: "political compulsions have led the government to propose an imperfect model of VAT" 'Indian VAT system is imperfect' to the extent it 'goes against the basic premise of VAT'. India seems to have an 'essenceless VAT' because the very reasons for which VAT receives academic support have been disregarded by the VAT-Indian Style, namely: removal of the distortions in movement of goods across states; Uniformity in tax structure. Chanchal Kumar Sharma (2005:929) clearly states, "Local or state level taxes like octroi, entry tax, lease tax, workers contract tax, entertainment tax and luxury tax are not integrated into the new regime, which goes against the basic premise of VAT, which is to have uniformity in the tax structure. The fact that no tax credit will be allowed for inter-state trade seriously undermines the basic benefit of enforcing a VAT system, namely the removal of the distortions in movement of goods across the states."

"Even the most essential prerequisite for success of VAT i.e. elimination of [Central sales tax (CST)] has been deferred. CST is levied on basis of origin and collected by the exporting state; the consumers of the importing state bear its incidence. CST creates tax barriers to integrate the Indian market and leads to cascading impact on cost of production. Further, the denial of input tax credit on inter-state sales and inter state transfers would affect free flow of goods." (Sharma, 2005:922)

The greatest challenge in India, asserts Sharma (2005) is to design a sales tax system that will provide autonomy to subnational levels to fix tax rate, without compromising efficiency or creating enforcement problems.

States where VAT is applicable

Andhra Pradesh

In the Indian state of Andhra Pradesh, the Andhra Pradesh Value Added Tax Act, 2005 came into force on 1 April 2005 and contains six schedules. Schedule I contains goods generally exempted from tax. Schedule II deals with zero rated transactions like exports. Schedule III contains goods taxable at 1%, namely jewellery made from bullion and precious stones. Goods taxable at 5% are listed under Schedule IV. The majority of foodgrains and goods of national importance, like iron and steel, are listed under this head. Schedule V deals with Standard Rate Goods, taxable at 14.5%. All goods that are not listed elsewhere in the Act fall under this head. The VI Schedule contains goods taxed at special rates, such as some liquor and petroleum products.

The Act prescribes threshold limits for VAT registration – dealers with a taxable turnover of over Rs.40.00 lacs, in a tax period of 12 months, are mandatorily registered as VAT dealers. Dealers with a taxable turnover, in a tax period of 12 months, between Rs.5.00 to 40.00 lacs are registered as Turnover Tax (TOT) dealers. While the former category of dealers are eligible for input tax credit, the latter category of dealers are not. A VAT dealer pays tax at the rate specified in the Schedules. The sales of a TOT dealer are all taxable at 1%. A VAT dealer has to file a monthly return disclosing purchases and sales. A TOT dealer has to file a quarterly return disclosing only sale turnovers. While a VAT dealer can buy goods for business from anywhere in the country, a TOT dealer is barred from buying outside the State of A.P.

A unique feature of registration in Andhra Pradesh is the facility of voluntary VAT registration and input tax credit for start-ups.

The act not only provides for tax refunds for exporters (refund of tax paid on inputs used in the manufacture of goods exported) but also provides for refund of tax in cases where the inputs are taxed at 14.5% and outputs are taxed at 5%.

Gujarat

The Government of Gujarat had pass the “Gujarat Value Added Tax Act, 2003” (Act) in the year 2003 and specified that the date of implementation (appointed date) of the same would be notified later. Accordingly, the Government of Gujarat has vied notification no. GHN – 14/VAT-2006/S.1.(3)(1)-TH dated 29 March 2006 notified that the appointed date for implementation of VAT regulations in the State of Gujarat shall be effected from 1 April 2006.

However “The Central Sales Tax Act, 1956” (Central Act) which levies sales tax on inter-state sales is still effective and all inter state sale and purchase transactions effected after 1 April 2006 in the State of Gujarat shall continue to be subject to levy central sales tax as applicable earlier.

In Gujarat, "GVAT" Act 2003, will merge three existing state taxes:
Gujarat Sales Tax Act, 1956
Bombay Sales of Motor Spirit Taxation Act,1958 Gujarat Purchase Tax on Sugarcane Act,1989

Rates under VAT:

The Gujarat Value Added Tax Act, 2003 - Schedule

1. Vat Schedule Details [1]

Schedule No	Description
Schedule 1	Goods, the sales or Purchase of which are exempt from tax
Schedule 2	List of Goods Taxable at 5% and other rates as specified in the schedule
Schedule 3	List of Goods Taxable at special rates
General Category	Goods not specified in any other schedule taxable @ 15%

Maharashtra

The system of Value Added Tax (VAT) has been implemented, in the State of Maharashtra, w.e.f. 1 April 2005. Every dealer, who becomes liable to pay tax under the provisions of MVAT, shall apply electronically for registration, within 30 days from the date of such liability.
Rate of Tax:
Schedule ‘A’ – Essential Commodities (Tax free)- Nil
Schedule ‘B’ – Gold, Silver, Precious Stones, Pearls etc. - 1%
Schedule ‘C' – Declared Goods and other specified goods - 4% Other goods w.e.f. 1/5/10 - 5%
Schedule ‘D’ – Foreign Liquor, Country Liquor, Motor Spirits, etc. - At specified rates
Schedule ‘E’ – All other goods (not covered by A to D) - 12.5%

Rajasthan

• From no. VAT-01 for VAT and From-A for C.S.T.
• From no. VAT-02 for declaration of business Manager
• Two photographs each of proprietor/Partner’s/ One director signing the paper’s to be Pasted on Affidavit in VAT-01B
• Security bond on stamp papers of Rs. 200/- for VAT no. and Rs. 200/- for C.S.T. no. duly signed by two guarantor’s
• PAN Number
• Affidavit on Rs. 10/- Stamp paper in form VAT-01B
• Partnership deed in case of partnership firm
• Memorandum and Articles of Association in case of a Company
• Rent deed or Rent Receipt
• Copy of Board Resolution in case of a company
• Details of other place of Business
• Address proof and electricity bill of business place
• Information Regarding bank account with MIRC CODE and IFSC CODE of branch
• Check electricity bill date
• If given driving license in Address proof Check driving license expiring date

Telangana

What is VAT ?

Tripura

in uttar pradesh vat law

Delhi

DVAT 2004 as amended by DVAT 2005 and DVAT Rules 2005 came into force w.e.f. 1 April.,2005. It repealed Delhi Sales Tax Act 1975, Delhi Sales Tax on Works Contract Act, 1999, Delhi Sales Tax on Transfer to Right to use Goods Act 2002 and Delhi Tax on Entry of Motors Vehicles into Local Areas Act 1994.

See also

• Assam General Sales Tax
• Goods and Services Tax (India)
• Taxation in India