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What is Value Added Tax (VAT)? |
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How is VAT different from Sales Tax? |
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Who will be covered by VAT? |
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Who will not be covered by VAT? |
| 5. |
What are the rates of VAT? |
| 6. |
How does VAT work? |
| 7. |
How does VAT help trade? |
| 8. |
How does VAT help industry? |
| 9. |
How does VAT help exports? |
| 10. |
How does VAT affect the consumer? |
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| What is Value Added Tax (VAT)? |
| VAT is a simple transparent tax collected on sale of goods. The States and Union Territories have decided to introduce VAT in place of sales tax and related state taxes. |
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| How is VAT different from Sales Tax? |
| VAT will have only four rates instead of the large number of rates of sales tax. With offsetting of tax on inputs against that on output, VAT does away with tax on tax. Claiming input tax credit under VAT ensures proper invoicing. Overall, these features of VAT encourage disclosure of complete information on business turnover. |
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| Who will be covered by VAT? |
| All business transactions carried on within a State by individuals, partnerships, companies etc. will be covered by VAT. |
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| Who will not be covered by VAT? |
| VAT will not cover small businesses with a turnover below a certain limit which will be decided by each State. Medium size businesses, as again decided by the State, can opt for VAT or a composition system of tax on turnover. . |
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| What are the rates of VAT? |
| There are just four rates of taxes under VAT – the zero rate, 1%, 4% and a general rate of 12.5%. these rates will be uniform in all States across the country. The same set of goods will be charged at the same rates in all the States. Most essential commodities are exempt from VAT or fall in the 4% category. |
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| How does VAT work? |
| Most business purchases will carry a VAT charge. VAT paid as input tax can be adjusted against VAT on output. This will include VAT paid on purchases of raw materials or goods purchased for resale. The original copy of the VAT invoice is needed to claim input tax credit. |
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| How does VAT help trade? |
| Uniform rates of VAT will boost fair trade. 100% self-assessment will reduce the taxpayers’ need to visit the tax department offices.
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| How does VAT help industry? |
The system of input tax credit will promote production efficiency of investments. Investment decisions will not, therefore, be based on tax differentials, tax holidays etc. |
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| How does VAT help exports? |
| A. With zero rating of exports, the rate of tax on export goods will be zero and yet credit will be given on tax paid on inputs. This will make our exports more competitive. |
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| How does VAT affect the consumer? |
| VAT should not lead to price rise as there will be no tax on tax. |
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Courtesy - Ministry of Finance Website. |
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