This document provides an overview of value-added tax (VAT) in India, including its legislative background and key concepts. VAT is an indirect tax on goods that is imposed on the value added at each stage of production and distribution. India introduced VAT nationwide in 2005 to replace sales tax and address issues like revenue leakage. VAT is administered separately by each state and aims to make taxation more transparent while generating more revenue. The document discusses VAT rates, terminology, objectives, advantages, and disadvantages.

1. Dr. Harisingh gour vishwavidyalaya sagar (m.p.)
( A central university)
A presentation for “Indirect Tax”
TOPIC – Legislative background of concept of VAT
Department of business administration
BBA 6th sem.
SUBMITTED BY :
SUBMITTED TO :
ABHISHEK SHIVAHRE (Y19180503)
PRIYANKA PATHAK ADARSH YADAV (Y19180505)
MAM AASTHA JAIN (Y19180501)
ABHAY DODWANI (Y19180502)
ABHISHEK SONI (Y19180504)

2. What is VAT ( value added tax)
Value added tax (VAT) is in indirect tax on
goods. VAT is imposed only on the amount of
value addition. It is multi point tax levied as a
proportion of value addition, where the tax
burden can be shifted from one person to
another person till the ultimate the consumer
can consume the product.
 VAT is charged by state government
 VAT is a intra state sales tax (sales within the
state)

3. VALUE ADDED TAX
 Value added tax (VAT) is a general consumption tax
assessed on the value added to goods and services.
 Over 130 countries worldwide have introduced VAT
over the past three decades and India is among the
last few to introduce it.
 VAT has been introduced in Indian Taxation system
from April 1, 2005.
 It is considered to be multi-stage tax.
 VAT is administered by HM revenue and customs.
 550 items covered (270 basic need item)

4. - VAT is not applicable on following :
1. food ( with some exceptions)
2. newspapers
3. Magazines
4. Children’s clothing
- VAT was first suggested in Germany during
the world war 1 period.
- Each state and union territory has formulated
its VAT legislation except for “ ANDAMAN AND
NICOBAR”

5. WHY VAT ?
VAT comes in India in 1986, namely MODVAT
(modified value added tax ) in excise, that means it is
not a new scheme, it is very old. VAT is not a new
concept, it is a part of sales tax, but vat comes into
existence because the sales tax was causing couple of
problems, then to remove these problems the VAT (
which is the part of sales tax) applied by central govt.
of India.
 Now a days after some amendments in MODVAT
the name was changed into CENVAT (central value
added tax)
 Sales tax is also known as trade tax and turnover
tax.

6. The three type of VAT
 Consumption method
 Net income method
 Gross national product method of value –
added tax
 The VAT is applied to imported products.

7. VAT Applicability
 Below 5 Lakhs turnover – no tax required.
 5 – 40 Lakhs – TOT will apply and VAT is
optional.
 Above 40 Lakhs - VAT will apply.

8. VAT AND SALES TAX:
 Sales tax is imposed on the total retail price of
the item sold while VAT tax is imposed on the
value added at each stage of production and
distribution.
 Value-added tax system have more checks
against tax fraud because the tax is assessed at
more than one point in the distribution process.

9.  VAT RATES
There are four main rates for input and output vat tax.
• 0% on (exempted goods) agriculture products,
cotton and silk yarn, curd and butter milk, national
flag, salt
• 1% for Jewellery, bullion and specie, precious and
semi-precious stones.
• 4% on pharmacy, computers, soaps etc.
• 12.5% for FMCG, automobile

10. VAT Terminology – Input tax
 INPUT TAX
 Input tax is the tax shown in our purchase
bills.
 As per the norms, every trader need to show
tax separately and it is considered as input tax.
 apart from trade purchases, tax on capital
goods purchases like A.C., computers etc… is
also considered for this input tax.

11. VAT Terminology – Output tax
 OUTPUT TAX
 Output tax Is the tax charged on all the taxable
sales of a vat dealer.
 For ex. Tax shown by us our output tax and it
becomes input tax for our customers.

12. Ultimate objective of VAT
 Calculation easy and simple
 Transparency
 Increased tax base
 Competitive price
 Uniform Tax Structure
 More Revenue
 NO Revenue leakage
 Avoids double Taxtaion
 Co-ordination of VAT with direct taxation

13. Advantages of VAT
 Be based on consumption, and thus provide a
stable revenue base;
 Be “natural” since it would be imposed on all type
of business;
 provide stronger incentives for businessess to
control costs;
 Encourage, or at least not discourage, savings;
 Have the potential for raising large amounts of
revenue at a law tax rate;
 Be simple to adminidter;

14.  Reduce obstacles to exports, under certain
conditions;
 help bring about a better balanced tax system.

15. DISADVANTAGES OF VAT
 As the VAT is based on full billing system, VAT
implementation is expensive.
 it is not a simple task to calculate value added in
every stage is not an easy task. Thus VAT is
difficult to understand.
 VAT is regressive in nature. Thus it will affect the
poor people more than the rich people because
they spend more proportion of their income.
 All purchase and sales records should be
maintained which will cause increased
compliance cost.