Vat concepts

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Vat concepts

  1. 1. VATCONCEPTS By CA Deepak Nagpal
  2. 2. LEVY,CLASSIFICATION AND ADVANTAGES 2
  3. 3. What is VAT?Value Added TaxEmpowered by Entry 54 of the statelist. 3
  4. 4. Constitutional EmpowermentEntry 54 of State List (List II) Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I.Entry 92A of Union List (List I) Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. 4
  5. 5. Problems with Sales taxsystem State VAT Key benefits forintroduction of VAT Levy of VAT Classification of goods 5
  6. 6. Basic RatesExempted category4% VAT rate category12.5% General VAT rate(Revenue Neutral Rate)1% Special VAT rate20% - Non-VAT goods 6
  7. 7. OUTPUT TAX AND INPUT TAXCREDIT MECHANISM 7
  8. 8. Mechanism of VATInput tax & Output taxInput Tax Credit(ITC) 8
  9. 9. VAT LiabilityInput purchased within month :Rs.1,00,000/-Output sold in the month :Rs.2,00,000/-Input tax paid (a) :Rs.4000/-Output tax payable (b) :Rs.25,000/-VAT payable during the month :Rs.21,000/-After set-off/input tax credit [(a) – (b)] 9
  10. 10. ITC is prescribed for purchasesmade for the following purposes: Sale within State Sale in course of inter-State trade & commerce. Sale in course of export out of territory of India. Being used as packing material of goods for sale. 10
  11. 11. Being used as raw material- mfg.- otherthan exempted.Being used as raw material- mfg.- exportBeing used in the state as capital goods.Goods purchased- mixed use- ITCallowed proportionately.Stock transfer- ITC reversal of 2% 11
  12. 12. ITC is not allowed on purchasesof goods Which are being used in manufacture of Exempted goods From registered dealer opting for Composition scheme Imported from Outside India Where the purchase Invoice is not available Notified by the state govt. as not eligible for taking credit 12
  13. 13. For Personal useFrom Unregistered dealer, because hecannot issue VAT invoiceWhere invoice does not show amount ofTax separatelyFrom other State (on payment of VAT ofother state or on payment of CST) 13
  14. 14. Carrying Over of Tax Credit Zero Rated Sale Exemption or refund to SEZ &EOU units Inputs procured from otherstates Treatment under CompositionScheme 14
  15. 15. Compulsory issue of Tax Invoice,Cash memo or Bill Purchases of Goods used inrelation to business but not asinputs – Maharashtra VAT One to one correlation notrequired No ITC if final product is exempt Unregistered Purchase tax 15
  16. 16. COMPOSITION SCHEME,REGISTRATION &DOCUMENTATION 16
  17. 17. Composition Scheme- Scheme-Important Aspects All registered dealers- eligible to opt for composition scheme Optional (Not compulsory) Max. turnover limit- 50 lacs Rate of tax is 1% of turnover Dealers under this scheme shall not get any ITC 17
  18. 18. If dealers turnover crosses the notifiedamount, such dealers are automaticallyout of composition schemeIf dealer wants to be under regularscheme then application can be made torespective VAT jurisdictionDealers under this scheme cannot makeinterstate purchases and sales 18
  19. 19. RegistrationRegistration Number(TIN)DocumentationReturn FilingVAT Invoice Importance Contents Other InvoicesCredit Notes and Debit Notes 19
  20. 20. CENTRAL SALES TAX (CST) 20
  21. 21. Rate of Tax◦ Local rate or 2% whichever is higher without C-Form◦ Local rate or 2% whichever is lower with C- Form Exemption◦ CST is exempt if local sale is exempt◦ Sale in transit is exempt◦ Sale to SEZ – Against Form I◦ Sale to Exporter – Against Form H 21
  22. 22. Stock Transfer• Form – F is required to establish stock transfer Interstate Sales• U/s 3(a) sale is interstate if it occasions movement of goods from one state to other• U/s 3(b) by transfer of documents of title during movement of goods from one state to another 22
  23. 23. Situs of sale- Sec 4 of CST Act sale-In case of specified or ascertained goods The state in which goods are lying at the time when contract of sale is madeIn case of unascertained or future goods The state in which goods are appropriated to the contract of sale 23
  24. 24. Statutory FormsFORM A Application for registration A:under CST ActFORM B: Certificate of Registration BFORM C Declaration by purchasing C:registered dealer to obtain goods atconcessional rateFORM D Withdrawn with effect from D:01.04.2007FORM E1, E2 Certificate for Sale in E2:transit 24
  25. 25. FORM F Certificate for Stock transfer F:FORM G Indemnity bond when C form G:lostFORM H Certificate for benefit of H:deemed ExportFORM I Certificate by SEZ unit I:FORM J Certificate to be issued by J:foreign diplomatic mission or consulatein India or the UN Agency 25
  26. 26. DEEMED SALES 26
  27. 27. Article 366 (29A)“Tax on sale or purchase of goods” includes(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;(b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;(c) a tax on the delivery of goods on hire- purchase or any system of payment by installments; 27
  28. 28. (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;(e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; 28
  29. 29. (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; 29
  30. 30. Hire Purchase[Article 366(29-A)] 366(29-Right to Use (Lease)Works Contract 30
  31. 31. COMPUTATION OF VAT(ILLUSTRATIONS) 31
  32. 32. Different Stages of VATVAT Rate: Raw material @ 12.5% Finished goods @ 12.5%FIRST STAGE- Raw material producer STAGE- Inputs Sale Price Tax Tax already Net VAT charged paid payable0 1000 125 0 125SECOND STAGE- Manufacturer STAGE-Purchase Value Sale Tax Tax already Net VAT Price Addition Price charged paid payable1000 1000 2000 250 125 250-125 =125 32
  33. 33. THIRD STAGE- Wholesaler STAGE-Purchase Value Sale Tax Tax already Net VAT Price Addition Price charged paid payable2000 100 2100 262.50 250 262.5-250 =12.50FOURTH STAGE- Retailer STAGE-Purchase Value Sale Tax Tax already Net VAT Price Addition Price charged paid payable2100 420 2520 315 262.50 315-262.5 =52.50 33
  34. 34. Value addition & involvement of taxFirst Stage Second Stage Third Stage Fourth Stage 1000 1000 100 420 Tax=125 Tax=125 Tax=12.5 Tax=52.50Total Value addition= 1000+1000+100+420 = 2520Since tax rate at each stage is @ 12.50%,Therefore, Net tax payable= 315 34
  35. 35. VAT in Inter-State Trade Inter- Inter-State Trade Inter-State sale Purchase Delhi Maharashtra C-FORMCost Price 10,000 Cost Price 12,240Local Tax paid on 1,250 Local Tax paid on 0Purchase (12.50%) PurchaseSale Price 12,000 Sale Price 13,000CST charged @ 2% 240 Local Tax charged @ 1,625Agnst. C-Form 12.5%VAT Credit 1,250 VAT Credit 0Tax Payable -1010 Tax Payable 1,625 (240-1,250) (1,625-0)35

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