Value Added Tax

Value Added Tax

VAT is the indirect tax on the consumption of the goods, paid by its original producers upon the
change in goods or upon the transfer of the goods to its ultimate consumers. It is based on the value
of the goods, added by the transferor. It is the tax in relation to the difference of the value added by
the transferor and not just a profit.
All over the world, VAT is payable on the goods and services as they form a part of national GDP. It
means every seller of goods and service provider charges the tax after availing the input tax credit. It
is the form of collecting sales tax under which tax is collected in each stage on the value added of the
goods. In practice, the dealer charges the tax on the full price of the goods, sold to the consumer and
at every end of the tax period reduces the tax collected on sale and tax charged to him by the dealers
from whom he purchased the goods and deposits such amount of tax in government treasury.

 

Method of Collection

There are two methods for collection of VAT in India. In the first method, tax is charged separately on
the basis of the tax which is paid on purchase, and the tax that is payable on the sale (shown
separately in the invoice). Therefore, the difference between the tax paid on purchase and the tax
payable on sale as per the invoice is the VAT.
In the second method, tax is collected and charged on the aggregate value of the tax payable on sale
and purchase, by applying the rate of tax applicable to the goods. Therefore, the difference between
the sale price and purchase price would be VAT. It means VAT is the tax which consumers ultimately
face, which is collected at each stage.
Sales tax is levied on the sale of a commodity, which is produced or imported and sold for the first
time. If the product is sold subsequently without being processed further, it is exempt from sales tax.
Sales Tax is a levy on purchase and sale of goods in India and is levied under the authority of both
Central Legislation (Central Sales Tax) and State Governments Legislations (Sales Tax). The
government levies Sales Tax principally on intra-state sale of goods. States also levy tax on
transactions which are “deemed sales” like works contracts and leases.
In addition to Sales Tax, some states also levy additional tax, surcharge, turnover tax and the like.
Ordinarily, Sales tax is recovered from the buyer as a part of consideration for sale of goods.
Sales tax is paid by every dealer on the sale of any goods made by him in the course of inter-state
trade or commerce, despite the fact that no liability to tax is raised on the sale of goods under the tax
laws of the appropriate state.

 

Sales Tax ID number

A state Sales Tax ID number is essentially a business version of your Social Security number, under
which you collect and pay tax for any service or product you sell, which in turn, qualifies for taxation
in your state.
The rule of thumb for Sales Tax is that most services are exempt and most products are taxable
except for food and drugs, though recent history reflects that states have been gradually adding to the
list of services that are taxable.
To be Conti.....