Professional Documents
Culture Documents
By
V. Narayanan
Value Added Tax Practitioner
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 1
Chennai – 600 044 Phone: 91-44-2265 4506
Agenda
Sales Tax - An Overview
Introduction to VAT
VAT - What it means?
Sales Tax and VAT - A Comparative Study
Advantages of VAT
Registration
Schedules in VAT Act
Implication on works contract (after VAT)
Forms – A Walkthrough
Conclusion
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 2
Chennai – 600 044 Phone: 91-44-2265 4506
Sales Tax – An Overview
Falls under exclusive jurisdiction of state
governments - Article 246 of the Indian
Constitution
State governments levy different tax
rates for different goods – based on the
specific needs of people, businesses
and industry
Form of taxation applicable not only in
India, but globally
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 3
Chennai – 600 044 Phone: 91-44-2265 4506
Genesis of VAT
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 4
Chennai – 600 044 Phone: 91-44-2265 4506
Why VAT?
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 5
Chennai – 600 044 Phone: 91-44-2265 4506
Current Status of VAT
Implementation
Year 2005: 22 states implemented
Year 2006: 6 states have implemented
Year 2007: Remaining states have
implemented
Status in Tamil Nadu:
July 22, 2006: Finance Minister of Tamil
Nadu announced in the state assembly
about the introduction of VAT system
October 28, 2006: VAT Act was published in
Tamil Nadu Gazette and introduced,
effective from January 1, 2007
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 6
Chennai – 600 044 Phone: 91-44-2265 4506
What is VAT?
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 7
Chennai – 600 044 Phone: 91-44-2265 4506
Example
Data Calculation
Purchases: Input worth
S.No Parameter Amount
Rs. 1,00,000/- in a
(in Rs.)
month
Sales: Output worth 1 Input purchased within the 1,00,000
month
Rs. 2,00,000/- in a
month 2 Output sold within the month 2,00,000
Input tax rate: 4% 3 Input Tax Paid 4,000
Output tax rate: 12.5%
4 Output Tax Payable 25,000
5 VAT payable during the 21,000
month after set-off/input
tax credit
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 8
Chennai – 600 044 Phone: 91-44-2265 4506
Concept of VAT and Set-off /
Input Tax Credit
Essence of VAT is providing set-off for the
tax paid earlier, given effect through the
concept of input tax credit/rebate.
Note: Total VAT collected at four points: Rs. 10 + Rs. 4 + Rs. 3 + Rs. 2 = Rs.19/-
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 10
Chennai – 600 044 Phone: 91-44-2265 4506
Sales Tax & VAT – A
Comparison…1
S.No. Sales Tax VAT
1 Tax is levied either at multi-stage Tax is levied comprehensively at every
or single stage. point of sale till retail stage.
2 Tax is imposed only on sales Tax is levied on every value addition
turnover of goods. including services, agricultural activities,
labour, interest, royalties etc.
3 Tax paid on purchases is not Tax paid on purchases (inputs) including
rebated capital goods is rebated
4 As tax paid is built in the cost, it As tax paid fully rebated, there is no
taxes the tax. So, there is tax cascading.
cascading.
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 11
Chennai – 600 044 Phone: 91-44-2265 4506
Sales Tax & VAT – A
Comparison…2
S.No. Sales Tax VAT
5 To minimize cost of production, As the tax paid is credited, there is no
manufacturer produces possibility of vertical integration.
intermediary products to use in the
final product. This leads to vertical
integration.
6 Abnormal increase in price of the Nominal increase in price of goods
goods
7 In single point tax, verification of The system facilitates mechanism for
earlier sufferance of tax is not easy. verification of claim of tax credit.
So, there is large scale evasion of
tax.
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 12
Chennai – 600 044 Phone: 91-44-2265 4506
Advantages
Rationalized Tax Structure: 1% , 4%, and 12.5%
Simple: Minimum exemptions with lesser rate and refund
procedures.
Transparent: Being a consumption tax, more transparency
is maintained
Bigger Opportunities: By giving tax credits, the
manufacturing cost will be less and even bigger enterprises
will establish their presence in Tamil Nadu.
Reduced Prices of Goods: Elimination of tax cascading
and pyramiding effects
Growth: Creates more job opportunities in the state.
Tax Compliance: Checks tax evasion
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 13
Chennai – 600 044 Phone: 91-44-2265 4506
Registration
Registration Fee: Rs.500 for the principal place and Rs.50
for each of the other places for all categories of dealers.
Renewal not required: Registration once granted need not
be renewed each year, will continue to be in force till revoked
or till the closure of the business.
Legal Provisions:
Under Section 88 (3) (i) all rules, regulations, notifications,
clarifications or orders made or issued under any other
provisions of the said act shall continue in force on or after such
date under TNVAT too. Until they are repealed or amended.
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 14
Chennai – 600 044 Phone: 91-44-2265 4506
TIN
Tax Payer’s Identification Number (TIN) already
made available to all existing dealers.
TIN consists of 11 digit numerals throughout the
country:
First two characters will represent the State Code as
used by the Union Ministry of Home Affairs.
The set-up of the next nine characters may, however,
be different in different States. In Tamil Nadu, the last
seven digits relates to the existing TNGST number
holders.
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 15
Chennai – 600 044 Phone: 91-44-2265 4506
Schedules
6 Schedules (as against 11 in the old
scheme). They include:
Schedule Description
Number
1 VATable Goods)
Part A - Bullion, Gold, Silver (taxable @ 1%)
Part B - Taxable @ 4% (150 items)
Part C – Taxable @ 12.5% (69 items) – W.E.F 12.07.2007
2 Non-VATable (12 items)
3 Compounding Schemes for Hotels, Restaurants & Sweet Stalls
4 Exempted Goods (Section 15)
5 Zero Rate Sale – International Organizations
6 Transit Passes
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 16
Chennai – 600 044 Phone: 91-44-2265 4506
Compounding Scheme
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 17
Chennai – 600 044 Phone: 91-44-2265 4506
Implication on works contract
(after VAT)
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 18
Chennai – 600 044 Phone: 91-44-2265 4506
Continued…
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 19
Chennai – 600 044 Phone: 91-44-2265 4506
Exempt vis-à-vis Zero Rated
Sale
Dealer not entitled for input tax credit if
the sales are not taxable and exempted
Refund on input tax applicable to a
dealer who pays no tax on his output
For e.g., Export
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 20
Chennai – 600 044 Phone: 91-44-2265 4506
Continued….
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 23
Chennai – 600 044 Phone: 91-44-2265 4506
VAT & CST Act
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Chennai – 600 044 Phone: 91-44-2265 4506
VAT & Stock Transfer
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Chennai – 600 044 Phone: 91-44-2265 4506
VAT & Deemed Sales
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 26
Chennai – 600 044 Phone: 91-44-2265 4506
Tax Computation on WCT –
Sec 5
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 27
Chennai – 600 044 Phone: 91-44-2265 4506
Treatment of Exports &
Deemed Exports
Export will be zero-rated. Refund on ITC
Penultimate sale is also treated as Export and
eligible for ITC
Sales to SEZs and International Organizations
are zero-rated ITC available for both
contractors as well as sub-contractors
Refund of ITC to Exporters/Deemed Exporters
will be made within 180 days from the date of
claim. Beyond which period such credit lapse
to Government.
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 28
Chennai – 600 044 Phone: 91-44-2265 4506
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 29
Chennai – 600 044 Phone: 91-44-2265 4506
Capital Goods
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 30
Chennai – 600 044 Phone: 91-44-2265 4506
Returns
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 31
Chennai – 600 044 Phone: 91-44-2265 4506
Assessment Procedure
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 33
Chennai – 600 044 Phone: 91-44-2265 4506
Input tax Credit
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 34
Chennai – 600 044 Phone: 91-44-2265 4506
Scrutiny of Accounts
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 35
Chennai – 600 044 Phone: 91-44-2265 4506
Audit
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 36
Chennai – 600 044 Phone: 91-44-2265 4506
Treatment of Waiver &
Deferral
Units enjoying waiver will be required to
switch over to deferral mode of payment
Units enjoying the benefits of deferral will
continue for the un-expired period
subject to unused portion of monetary
ceiling
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 37
Chennai – 600 044 Phone: 91-44-2265 4506
Status of Other Taxes after
Introduction of VAT
Additional Sales Tax, Surcharge, and
Resale Tax will be abolished
No provision for concession sale, hence
no declaration forms such as Form XVII
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 38
Chennai – 600 044 Phone: 91-44-2265 4506
Forms
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 39
Chennai – 600 044 Phone: 91-44-2265 4506
Conclusion
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 40
Chennai – 600 044 Phone: 91-44-2265 4506
Thank You
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 41
Chennai – 600 044 Phone: 91-44-2265 4506