VAT in Various States of India

VAT or value added tax has replaced the sales tax in India. Earlier across the India there is a sales tax applicable on all the manufacturing goods however later on VAT or value added tax came into existence. This tax (VAT) helps the government to generate the revenue in a systematic way. The basic principle of the value added tax is to collect the tax at the inception of the goods that is going to be manufactured. For e.g. if the trader is purchasing goods at Rs 100 then he needs to pay the value added tax of 10% similar kind of tax will be paid by the manufacturer while purchasing the raw material.

Let’s have a look on the simplest way of calculation of VAT.
Purchase price paid by the dealer 1 from broker
Rs 100 + 10% tax= Rs 110 (here tax is Rs 10)
If the dealer 1 sells the good to other dealer 2
Rs 120+10% tax = Rs 132 (here after including profit of Rs 10 by dealer1 tax is Rs 12)
This will reduce the tax of dealer1 and added the excess amount while selling the goods to dealer2.

VAT has been imposed on various states such as Andhra Pradesh, Maharashtra, Madhya Pradesh, Orissa, Kerala, Tamil Nadu and Rajasthan. The present VAT structure provided by the government is not turned out to be a foolproof formula hence central government keeps on removing it sometimes due to the agitation of the manufacturer and dealer. VAT is not a standard denomination in all the states it is varied in different part of the country. On an average there are two average tax slabs the first one is 4% that covers all the essential items where as the second slab consist of 10% that covers all the luxury items. There are two sub slabs also that is 1% for jewellery and 20% for non-essential goods.

This should be noted that there are two ways to collect VAT:

1. In the very first method tax is charged both on the basis of the tax that is paid by the customer on its purchase this tax is simply applicable on sales. In a simple language the difference between the tax paid on purchase and tax paid on sales.
2. In other method tax is collected on the cumulative value of tax paid on sales and tax paid on purchase.

The key benefit that is given on the basis of Value added tax (VAT):

1. Reduces tax evasion.
2. Multiple taxes such as turnover tax, surcharge on sales tax, additional surcharge etc have been put an end to.
3. Advocated an internal system of self assessment for VAT liability.
4. Tax structure becomes easier and more visible.
5. Enhances tax compliance and results in higher revenue growth.
6. Encourages competitiveness of exports.

There are several states that never allow to imposing of the value added tax (VAT) due to the agitation by the traders who opposed multiple taxes on the goods. Due to this reason there were several times state government remove the value added tax.