Value-added taxation in India

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.

Although the implementation of broadbase federal VAT system has been considered
as the most desirable consumption tax for India since the early 1990s, such a reform would
involve serious problems for the nances of regional governments. In addition, implementing VAT in India in context of current economic reforms would have paradoxical dimensions for Indian federalism. On one hand
economic reforms have led to decentralization of expenditure responsibilities, which in
turn demands more decentralization of revenue
raising power if scal accountability is to be
maintained. On the other hand, implementing
VAT (to make India a single integrated market) would lead to revenue losses for the States
and reduce their autonomy indicating greater
centralization (Sharma, 2005, as quoted in
OECD, 2008, 11213)[1]

Timeline

Haryana became the rst State in the country that had

adopted the taxation on 1 April 2003.
A few states Gujarat, Rajasthan, Madhya Pradesh,
Chhattisgarh, Jharkhand, Uttarakhand and Uttar Pradesh
opted to stay out of VAT taxation system during the initial introduction of VAT, before adopting the VAT at a
later date.
As of 2 June 2014, VAT has been implemented in all the
states & union territories of India, except in Andaman
and Nicobar Islands and in Lakshadweep island.

Chanchal Kumar Sharma (2005:929) asserts: political

compulsions have led the government to propose an imperfect model of VAT 'Indian VAT system is imperfect'
to the extent it 'goes against the basic premise of VAT'. India seems to have an 'essenceless VAT' because the very
reasons for which VAT receives academic support have
been disregarded by the VAT-Indian Style, namely: removal of the distortions in movement of goods across
states; Uniformity in tax structure. Chanchal Kumar
Sharma (2005:929) clearly states, Local or state level
taxes like octroi, entry tax, lease tax, workers contract
tax, entertainment tax and luxury tax are not integrated
into the new regime, which goes against the basic premise
of VAT, which is to have uniformity in the tax structure.
The fact that no tax credit will be allowed for inter-state
trade seriously undermines the basic benet of enforcing
a VAT system, namely the removal of the distortions in
movement of goods across the states.

History

The empowered committee of state nance ministers

constituted by the ministry of nance, government of India, on the basis of the resolution adopted in the conference of chief ministers on November 16, 1999 under the
chairmanship of Dr. Assim Dasgupta came out with a
white paper on state level VAT, which was released on
January 17, 2005 by P. Chidambaram, the nance Minister then of Government of India.
The paper consisted of three parts.
part 1, justication of VAT and background.
part 2, main design of VAT.

part 3, related issues of eective implementation of Even the most essential prerequisite for success of VAT
i.e. elimination of [Central sales tax (CST)] has been deVAT.
ferred. CST is levied on basis of origin and collected by
VAT was not to be mandatory for small dealers with a the exporting state; the consumers of the importing state
gross annual turnover of 5 lakh or less, but some states bear its incidence. CST creates tax barriers to integrate
increased the threshold limit to 10 lakh. VAT was imple- the Indian market and leads to cascading impact on cost
mented in the majority of states after consensus amongst of production. Further, the denial of input tax credit on
them with eect from 1 April 2005. The OECD (2008, inter-state sales and inter state transfers would aect free
11213) cites Chanchal Kumar Sharma (2005) to answer ow of goods. (Sharma, 2005:922)
why it has proved so dicult to implement a federal VAT The greatest challenge in India, asserts Sharma (2005) is
in India. The book quotes:
to design a sales tax system that will provide autonomy to
1

3 STATES WHERE VAT IS APPLICABLE

subnational levels to x tax rate, without compromising However The Central Sales Tax Act, 1956 (Central
eciency or creating enforcement problems.
Act) which levies sales tax on inter-state sales is still effective and all inter state sale and purchase transactions
eected after 1 April 2006 in the State of Gujarat shall
continue to be subject to levy central sales tax as applica3 States where VAT is applicable
ble earlier.
In Gujarat, DVAT Act 2003, will merge three existing
state taxes:
The Andhra Pradesh Value Added Tax Act, 2005 came Gujarat Sales Tax Act, 1956
into force on 1 April 2005 and contains six schedules. Bombay Sales of Motor Spirit Taxation Act,1958 Gujarat
[2]
Schedule I contains goods generally exepted from tax. Purchase Tax on Sugarcane Act,1989
Schedule II deals with zero rated transactions like exports. Rates under VAT:
Schedule III contains goods taxable at 1%, namely jewellery made from bullion and precious stones. Goods tax- The Gujarat Value Added Tax Act, 2003 - Schedule
able at 5% are listed under Schedule IV. The majority of
foodgrains and goods of national importance, like iron 3.3 Maharashtra
and steel, are listed under this head. Schedule V deals
with Standard Rate Goods, taxable at 14.5%. All goods The system of Value Added Tax (VAT) has been
that are not listed elsewhere in the Act fall under this head. implemented, in the State of Maharashtra, w.e.f. 1
The VI Schedule contains goods taxed at special rates, April 2005. Every dealer, who becomes liable to pay tax
such as some liquor and petroleum products.
under the provisions of MVAT, shall apply electronically

3.1

Andhra Pradesh

The Act prescribes threshold limits for VAT registration

dealers with a taxable turnover of over Rs.40.00 lacs,
in a tax period of 12 months, are mandatorily registered
as VAT dealers. Dealers with a taxable turnover, in a tax
period of 12 months, between Rs.5.00 to 40.00 lacs are
registered as Turnover Tax (TOT) dealers. While the former category of dealers are eligible for input tax credit,
the latter category of dealers are not. A VAT dealer pays
tax at the rate specied in the Schedules. The sales of a
TOT dealer are all taxable at 1%. A VAT dealer has to
le a monthly return disclosing purchases and sales. A
TOT dealer has to le a quarterly return disclosing only
sale turnovers. While a VAT dealer can buy goods for
business from anywhere in the country, a TOT dealer is
barred from buying outside the State of A.P.

for registration, within 30 days from the date of such

liability.
Rate of Tax:
Schedule A Essential Commodities (Tax free)- Nil
Schedule B Gold, Silver, Precious Stones, Pearls etc.
- 1%
Schedule C' Declared Goods and other specied goods
- 5%
Schedule D Foreign Liquor, Country Liquor, Motor
Spirits, etc. - 20% and above
Schedule E All other goods (not covered by A to D) 12.5%

3.4 Manipur

A unique feature of registration in Andhra Pradesh is the

facility of voluntary VAT registration and input tax credit
3.5
for start-ups.

Mizoram

The act not only provides for tax refunds for exporters 3.6 Nagaland
(refund of tax paid on inputs used in the manufacture
of goods exported) but also provides for refund of tax 3.7 Odisha (Orissa)
in cases where the inputs are taxed at 14.5% and outputs
are taxed at 5%.
Rajasthan adopt VAT in place of sales tax from 1 April
2006

3.2

Gujarat

The Government of Gujarat had pass the Gujarat Value

Added Tax Act, 2003 (Act) in the year 2003 and specied that the date of implementation (appointed date) of
the same would be notied later. Accordingly, the Government of Gujarat has vied notication no. GHN
14/VAT-2006/S.1.(3)(1)-TH dated 29 March 2006 notied that the appointed date for implementation of VAT
regulations in the State of Gujarat shall be eected from
1 April 2006.

From no. VAT-01 for VAT and From-A for C.S.T.

From no. VAT-02 for declaration of business Manager
Two photographs each of proprietor/Partners/ One
director signing the papers to be Pasted on Adavit
in VAT-01B
Security bond on stamp papers of Rs. 200/- for VAT
no. and Rs. 200/- for C.S.T. no. duly signed by two
guarantors

3
PAN Number

Value added tax its depends on the product and services.

Adavit on Rs. 10/- Stamp paper in form VAT-01B form use T2 are road permit (sunil sharma)
14.5%
Partnership deed in case of partnership rm
Memorandum and Articles of Association in case of
a Company

4 See also

Rent deed or Rent Receipt

Assam General Sales Tax

Copy of Board Resolution in case of a company

Goods and Services Tax (India) Bill

Details of other place of Business

Taxation in India

Address proof and electricity bill of business place

Information Regarding bank account with MIRC
CODE and IFSC CODE of branch
Check electricity bill date
If given driving license in Address proof Check driving license expiring date

5 References
[1] Consumption Tax Trends 2008 VAT/GST and Excise Rates,
Trends and Administration Issues: VAT/GST and Excise
Rates, Trends and Administration Issues. OECD Publishing. 2008. p. 115. ISBN 9789264039476. Retrieved 5
July 2015.
[2] http://lemonconsulting.net/lc/legal/itax/form/gnvat.pdf

3.8

Sikkim

its 14.5%

3.9

Tamil Nadu

Vat 14.5% to 5.0%

3.10 Tripura
its 14.5%

3.11 Uttarakhand
14.5%

3.12 West Bengal

VAT

3.13 Delhi
DVAT 2004 as amended by DVAT 2005 and DVAT
Rules 2005 came into force w.e.f. 1 April.,2005. It repealed Delhi Sales Tax Act 1975, Delhi Sales Tax on
Works Contract Act, 1999, Delhi Sales Tax on Transfer
to Right to use Goods Act 2002 and Delhi Tax on Entry
of Motors Vehicles into Local Areas Act 1994.[3]

[3] Documents, Procedures & Formalities required for VAT

Registration in Delhi. TopCArms. Retrieved 3 December 2013.

6 External links
Department of Revenue, Ministry of Finance, Government of India

7 TEXT AND IMAGE SOURCES, CONTRIBUTORS, AND LICENSES

Text and image sources, contributors, and licenses

7.1

Text

Value-added taxation in India Source: https://en.wikipedia.org/wiki/Value-added_taxation_in_India?oldid=694435111 Contributors:

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