PROCEDURE TO BE FOLLOWED FOR DELHI VALUE ADDED TAX

Following are some of the provisions in brief which may require immediate attention, on account of enforcement of DVAT w.e.f. 1.4.05 in Delhi.

1.

Date of commencement DVAT 2004 as amended by DVAT 2005 and DVAT Rules 2005 come into force w.e.f. 1st April.,2005. It repeals 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.

2.

Liability to Tax a) Every dealer who is registered under this Act or who is required to be registered under this Act shall be liable to pay tax on taxable turnover at the rate specified in Sec. 4, i.e. 1) 2) 3) 4) 5) Goods specified in First Schedule Goods specified in Second Schedule Goods specified in Third Schedule Goods specified in Fourth Schedule Goods other than specified above i.e., general rate Exempt from tax @ 1% @ 4% @ 20% @ 12.5%

b)

Taxable Quantum or threshold limit prescribed for making a dealer liable to pay tax & for registration is : 1) 2) 3) For a dealer who imports goods for sale in Delhi Nil For a dealer who exports goods out of Delhi For others Nil Rs.10 Lakhs

c)

Sales in the course of Interstate & Trade & Commerce shall continue to be liable to tax under the C.S.T. Act as at present and all the forms such as C, D, E, F & H forms shall continue to be applicable because C.S.T. Act is not yet phased out.

3.

Registration a) Every dealer who is already registered under the Delhi Sales TaxAct, Works Contract Act or Right to use Goods Act, shall be automatically registered under the DVAT Act, and he is not required to seek fresh registration under DVAT.

b)

Every dealer whose turnover exceeds the taxable quantum during any year shall be liable for registration from the day his turnover so exceeds.

c)

Any dealer who is not compulsorily required to be registered as above can seek voluntary registration if he intends to undertake activities as a dealer.

4.

Composition a) Any dealer whose turnover exceeds Rs. 10 lakhs but does not exceed Rs. 50 lakhs, can opt for registration under Composition Scheme. However,

this scheme is not applicable if he is registered under Central Sales Tax Act. Also he shall not be entitled to make purchases from outside Delhi in the course of Interstate trade. Also he shall not make any purchases from a dealer who is not registered under DVAT Act.

b)

Such dealers shall be liable to pay tax on their turnover @ 1% only (may be amended to 0.25%).

c)

Such dealer shall not issue any tax invoice and shall not charge VAT in the invoice but shall issue onlyretail invoices.

d)

Any existing dealer under the S.T. Act, if his turnover in preceding year was below Rs. 50 lakhs can exercise option to be assessed under Composition Scheme. For this purpose he shall submit application in DVAT 2 before 30th April, 2005 & shall pay tax on his opening stock which has not suffered sales tax at the DVAT Rates.

e)

In casea dealer seeks registration after commencement of the DVAT, and estimates his turnover to be below 50 lakhs, he can also opt for composition scheme.

f)

He shall preserve his tax invoices and retail invoices obtained by him for making his purchases under DVAT for 7 years.

What Is Voluntary VAT Registration?

Although VAT registration is required by businesses with a taxable turnover above the threshold it is still possible to voluntarily register your business for VAT. And there are several business benefits to doing so.

What Are The Benefits of Voluntary VAT Registration?

There are a few benefits of voluntary VAT registration which make it quite appealing for small businesses. 1. Avoiding Financial Penalties No one likes to get an angry letter from the taxman. If you dont keep a careful eye on your turnover then you might not notice when it creeps over the VAT registration threshold. You can be sure the taxman will though and failure to properly register could result in a nasty fine for your business. The obvious advantage of voluntary VAT registration is you wont have to worry about passing the threshold or notifying HMRC in time. You can voluntarily register for VAT whenever you want to. 2. Boosting Your Business Profile starting out as a small business or new limited company it can be tough to compete against the big boys. Most people are aware of the VAT registration threshold, so voluntarily registering your business for VAT might give the impression that your business is bigger and more successful than it actually is. 3. Easing Business Dealings many suppliers and organisations are unwilling to do business with companies and SMEs that arent VAT registered. You might find that without the ability to produce a proper VAT invoice many of these people will be unwilling to deal with you. The advantage of voluntary VAT registration is you will be issued with a VAT registration number and can more easily deal with external businesses. VAT Refunds another advantage of voluntary VAT registration is the ability to claim VAT on goods and services purchased for your business. If you are selling one sort of VAT Rated product (e.g. zero rated) while buying another (e.g. standard rated) you may actually receive money back from the HMRC in VAT refunds! Reclaiming The Past voluntary VAT registration allows you to reclaim VAT from the last 4 years. So if youve been in business for a while, but not yet reached the threshold you can still reclaim VAT as long as you have kept the proper VAT records and invoices. VAT Registration Number voluntary VAT registration means youll get a VAT registration number for your business. You can (and should) display it on your business website, stationery and correspondence. It will instil faith in your business and give your business a professional touch.

4.

5.

6.

How To Register For VAT

You can directly register your business for VAT with HMRC. However because of the problems and issues associated with VAT registration the majority of people find it easier to use an agent. As a company formation agent we have plenty of experience helping people voluntarily register for VAT and getting the registration done correctly the first time. You can have peace of mind knowing that your business will be

properly VAT registered and you can start taking advantage of the benefits. Order VAT Registration online today or contact one of our business consultants on 0800 0828 727 for more support.

Beyond VAT Registration

Once voluntarily registered for VAT you need to abide by the same rules as another other VAT registered business. This means keeping proper records, invoices and submitting a VAT return every quarter. This might be seen as one of the disadvantages of voluntary VAT registration, but in truth it is one small hurdle. The good news is, our start-up and fixed fee accountancy services include support with filing VAT returns and can be tailored to suit your business. So there is nothing to lose in voluntarily registering your business for VAT. y

The primary implication of a VAT is that it imposes a tax each time goods are sold in the stream of commerce. Rather than a sales tax, which imposes tax only on the retail level, tax also is paid on wholesale transactions.

Geography
y

A VAT is not imposed universally. A VAT is imposed in the United Kingdom, throughout many Commonwealth countries---former British colonies---and in some other European nations, according to "Value Added Tax" by Alan Schenk & Oliver Oldman.

Benefits
y

The implications of VAT include the benefits derived from the system. Business and consumers pay taxes only when they make certain purchases. The government obtains revenue from multiple streams, on the wholesale and retail levels.
Value Added Taxes (VAT) in India Value Added Tax (VAT) is nothing but a general consumption tax that is assessed on the value added to goods & services. It 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. More than130 countries worldwide have introduced VAT over the past 3 decades; India being amongst the last few to introduce it. It means every seller of goods and service providers 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.

VAT is a multi-stage tax, levied only on value that is added at each stage in the cycle of production of goods and services with the provision of a set-off for the tax paid at earlier stages in the cycle/chain. The aim is to avoid 'cascading', which can have a snowballing effect on the prices. It is assumed that because of cross-checking in a multi-staged tax; tax evasion would be checked, hence resulting in higher revenues to the government. Importance of VAT in India India, particularly being a trading community, has always believed in accepting and adopting loopholes in any system administered by State or Centre. If a well-administered system comes in, it will not only close options for traders and businessmen to evade paying their taxes, but also make sure that they'll be compelled to keep proper records of sales and purchases. Under the VAT system, no exemptions are given and a tax will be levied at every stage of manufacture of a product. At every stage of value-addition, the tax that is levied on the inputs can be claimed back from tax authorities. At a macro level, two issues make the introduction of VAT critical for India Industry watchers believe that the VAT system, if enforced properly, will form part of the fiscal consolidation strategy for the country. It could, in fact, help address issues like fiscal deficit problem. Also the revenues estimated to be collected can actually mean lowering of fiscal deficit burden for the government. International Monetary Fund (IMF), in the semi-annual World Economic Outlook expressed its concern for India's large fiscal deficit - at 10 per cent of GDP. Moreover any globally accepted tax administrative system would only help India integrate better in the World Trade Organization regime. Advantages of VAT 1. Coverage If the tax is considered on a retail level, it offers all the economic advantages of a tax of the entire retail price within its scope. The direct payment of tax spreads out over a large number of firms instead of being concentrated only on particular groups, such as wholesalers & retailers. 2. Revenue Security - Under VAT only buyers at the final stage have an interest in undervaluing their purchases, as the deduction system ensures that buyers at earlier stages are refunded the taxes on their purchases. Therefore, tax losses due to undervaluation will be limited to the value added at the last stage. Secondly, under VAT, if the payment of tax is avoided at one stage nothing will be lost if it is picked up at later stage. Even if it is not picked up later, the government will at least have collected the VAT paid at previous stages. Where as if evasion takes place at the final/last stage the state will lose only tax on the value added at that particular point. 3. Selectivity - VAT is selectively applied to specific goods & business entities. In addition, VAT does not burden capital goods because of the consumption-type. VAT gives full credit for tax included on purchases of capital goods.

4. Co-ordination of VAT with direct taxation - Most taxpayers cheat on sales not to evade VAT but to evade their personal and corporate income taxes. Operation of VAT resembles that of the income tax and an effective VAT greatly helps in income tax administration and revenue collection. To know more about advantages of VAT click here: Advantages of VAT Disadvantages of VAT 1. 2. 3. 4. VAT is regressive VAT is difficult to operate from position of both administration and business VAT is inflationary VAT favors capital intensive firms

Items covered under VAT

y y y y y

All business transactions that are carried on within a State by individuals/partnerships/ companies etc. will be covered under VAT. More than 550 items are covered under the new Indian VAT regime out of which 46 natural & unprocessed local products will be exempt from VAT Nearly 270 items including drugs and medicines, all industrial and agricultural inputs, capital goods as well as declared goods would attract 4 % VAT in India. The remaining items would attract 12.5 % VAT. Precious metals such as gold and bullion will be taxed at 1%. Petrol and diesel are kept out of the VAT regime in India.

Tax implication under Value Added Tax Act Selling Price (Excluding Tax)

Seller

Buyer

Tax Rate

Invoice value (InclTax)

Tax Payable

Tax Credit

Net TaxOutflow

100

4% CST

104

4.00

114

12.5% VAT

128.25

14.25

0*

14.25

124

12.5% VAT

139.50

15.50

14.25

1.25

Consumer

134

12.5% VAT

150.75

16.75

15.50

1.25

Total to Govt.

VAT CST

16.75 4.00

Top
y

Difference Between VAT And CST