Blog Article

Value Added Tax or simply, VAT, is a consumption tax considered as an alternative to sales tax where only the consumer gets taxed. VAT is a multistage tax and is added to a product every time a value is added during any stages of production and at the time of sale. So essentially VAT is charged based on consumption and not income. VAT was introduced in India in April 2005 and has been maintained at a nearly uniform rate all over the nation. VAT registration is mandatory for any organization manufacturing or selling goods and crossing a certain cut-off for the annual turnover.

Things To Know About VAT

Before we go any further, here are some things that you need to know about VAT.

• VAT is a type of indirect taxation
• It is always applicable on goods/products alone
• The charges vary from state to state
• Is applied at each stage of production thereby increasing transparency
• VAT drastically reduces chances of tax evasion
• VAT is recognized globally, it thereby helps India integrate better with trade in other countries

Over the last few years, VAT has completely replaced sales tax and is now employed in over 150 countries around the world. VAT is calculated as follows –

Where input tax is the GST on purchases made and output tax is GST charged and collected on sales of the goods.

VAT can be classified into 4 types, they are –

NIL VAT rate: Meaning no VAT is levied. Applies to goods sold in their natural form like spices, cloth etc.

General VAT rate: Levied on goods that don’t fall into any other VAT classes. General VAT rate applies to commodities like alcohol, cigars and the likes. The Govt. charges high VAT on such goods, typically around 14-15%.

1% VAT rate: Most expensive goods are charged at this rate to keep their cost in check. Applying a high VAT rate would further increase the price, discouraging consumers. Commodities such as gold, gems etc are charged at 1% VAT rate.

4-5% VAT rate: This category has the widest range of goods as it covers most everyday products. Medicines, fuel, food etc fall into this category.

VAT Registration For Your Business

VAT registration is usually decided based on the annual turnover of your business. The cut off figure varies from state to state but commonly, If your company’s annual turnover crosses 2-10 lacs, you are legally obliged to get VAT registration.

Even though it is not mandatory for you to register for VAT if you business does not meet the cut off requirements, it is still a good idea to get VAT registration. Aside from the financial benefits, registering for VAT also helps keep the entire process transparent and minimises tax evasion risks. Some of the other benefits are –

• Helps prevent risk of financial penalties
• Displaying the VAT registration number on portals associated with your business will enhance credibility
• Enhances your business profile
• VAT refunds can be claimed on purchases that your business made

To get a VAT registration for your business you’ll need the following documents –

• A copy of your PAN card
• A certain sum of money as caution deposit
• ID proof of the promoters
• Address proof for your office

Once you have the above documents ready, follow the instructions below step by step. It generally takes 10-15 days to complete the entire process, but it may take longer if you don’t have the necessary details/documents ready.

Step 1: Getting the documents ready along with Form-1

For successful submission of Form-1 at the local VAT office, you’ll need the following documents-

Form A – The central sales tax registration certificate

Form 2 –  The professional tax registration certificate

All the documents mentioned in the last section

Copy of title/rental agreement of your business place/office

Partnership deed, if any

MOA and AOA, if you run a Pvt. Ltd. Co.

Step 2: Inspection of the business premises

On successful completion of Step 1, officials at your local VAT office will arrive at the address you provided in Form 1 for inspection. You will be given prior notice about the time of their visit.

Step 3: Paying The Fee

Post inspection, you’ll be asked to pay the fees for the registration at the same local VAT office and also pay a caution deposit. The charges may vary from state to state but is typically around INR 500 and the surety deposit is around INR 25,000.

Step 4: TIN & VAT Registration Certificate

Once all the three steps described above are done and dusted, you will be allotted a TIN (Tax Information Network) number and a VAT registration number.

The Hassle Free VAT Registration Process

While the above steps may sound easy, some people, especially busy business professionals hardly find the time to get them done. Also, for a first timer, it might be difficult to get VAT registration done smoothly. This is one of the reasons why people prefer to use agents to get this done. As long as you make sure that the agent is reputable and does not charge a hefty fee, it is a good idea.

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