INDIAN TAXATION
What is TAX?
a compulsory contribution to state revenue, levied by the government on workers' income and business
profits, or added to the cost of some goods, services, and transactions.
TAXATIONS IN INDIA (BEFORE 2017 FY)
VAT (VALUE ADDED TAX)
Value-added taxation in India was introduced as an indirect value added tax (VAT) 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.
As of 2 June 2014, VAT has been implemented in all the states and union territories of India except Andaman
and Nicobar Islands and Lakshadweep Island.
VAT is a kind of tax levied on sale of goods and services when these commodities are
ultimately sold to the consumer. VAT is an integral part of the GDP of any country.
VAT is a multi-stage tax which is levied at each step of production of goods and services
which involves sale/purchase. Any person earning an annual turnover of more than Rs.5
lacs by supplying goods and services is liable to register for VAT payment payment.
Features of Value Added Tax in India:
Similar goods and services are taxed equally. So a similar television from all brands
will be taxed the same
VAT is levied at each stage of production and hence makes the taxation process
easier and more transparent
VAT reduces chances of tax evasion and fosters compliance
Encourages transparency in sale of goods and services at the tiniest level
Calculation of VAT:
VAT is actually calculated as the difference between input tax and output tax.
VAT = Output Tax Input Tax
VAT Example:
Suppose Ram owns a restaurant and spends Rs.50,000 towards obtaining raw materials.
Input tax is 10%, so input tax becomes 10% of Rs.50,000 = Rs.5,000
Now after selling the food made by using the purchased raw materials, Ram was able to
make Rs.1,00,000. Supposing 10% output tax, output tax becomes Rs.10,000
So, final VAT payable by Ram comes out to be Rs.10,000 Rs.5,000 = Rs.5,000
VAT Implementation In Various State of India:
Since enforcement of VAT and collection of it comes under the purview of state
governments, different states have different VAT rules and implementation guidelines.
Hence, the procedure for tax implementation, rates of VAT, timelines for VAT payment and
VAT return filing, all differ from one state to another.
Despite state-specific implementations, VAT in India can be divided into four main
subheads.
NIL VAT Rate:
In a lot of states items that are very basic in nature are sold without levying any VAT on
them. These items are mostly those sold by the unorganized sector in their most basic or
natural form. Examples of this type of items are salt, khadi, condoms etc.
1% VAT Rate:
For items which tend to be highly expensive, the percentage of VAT applicable needs to
be kept low since otherwise the VAT levied could be too high an amount. For such items,
VAT is kept as low as 1%. Gold, silver and other precious stones as well as precious
jewelry fall under this category of goods. Most Indian states have fixed VAT for these
items at 1% of the amount.
4-5% VAT Rate:
A large number of daily consumption goods have been put by several state governments
under this category of VAT. So VAT charged on goods like oil, coffee, medicines etc. is
around 4-5% for most states in India.
General VAT Rate:
General VAT rates apply to goods which cannot be segregated and put under any of the
above listed VAT categories. For goods like liquor, cigarettes etc. many governments
charge high VAT rates of 12.5% or 14-15%. Also, many state governments follow a general
rate of VAT for goods which cannot be categorized to suit the above classification. Such
goods are taxed at 12%, 13% or even 15% in different states.
VAT IN TALLY.ERP
STEP 1: Enable VAT
Press F11: Features (Statutory & Taxation)
