This document provides information about value-added tax (VAT) in India, including: 1) VAT was introduced in India in 2005 to replace sales taxes and eliminate double taxation. It is now implemented across all Indian states except three. 2) VAT is charged on the value added at each stage of production and distribution. It aims to reduce the cascading effect of taxes. 3) VAT is calculated as the difference between output tax (tax collected on sales) and input tax (tax paid on purchases). Maintaining purchase and sales invoices is important for accurate VAT calculation.

1. • Dr. Hari singh Gour central UniversitySagar
Department of Business Department
A Presentation of INDIRECT TAX
On the Topic
“CONCEPT OF VAT”
Submitted To :- Priyanka Pathak
Submitted By
Aastha Jain (Y19180501)
Abhay Dodwani (Y19180502)
Abhishek Shivhare (Y19180503)
Abhishek Soni (Y19180504)
Adrsh Yadav(Y19180505)

2. What is VAT
 Value-added tax (VAT) is a type of indirect tax levied on goods and
services for value added at every point of production or distribution
cycle, starting from raw materials and going all the way to the final
retail purchase.

3. VAT in India
 VAT was introduced value added tax (VAT) into the Indiantaxationsystem from 1 April
2005. The existing general sales tax lawswere replaced with the ValueAdded Tax Act
(2005) and associated VAT rules.
 A few states(Gujarat, Tamil Nadu, Rajasthan,Madhya
Pradesh, Chhattisgarh,Jharkhand,Uttarakhand andUttar Pradesh) opted to stay out of
VAT taxationsystem during the initialintroductionof VAT but adoptedit later.
 As of 2 June 2014, VAT has been implementedin all the states and union territories of
India except Pondicherry, Andamanand NicobarIslands and Lakshadweep Island.

4. Why VAT is Introduced ?
 The main aim behind the introduction of VAT was to eliminate the presence of
double taxation and the cascading effect from the then existing sales tax
structure. A cascading effect is when there is tax levied on a product at every
step of the sale.
 The tax is levied on a value which includes tax paid by the previous buyer, so
the consumer ends up paying tax on already-paid tax.
 No exemptions can be made under the VAT system. Levying tax at each stage
of the production process ensures better compliance and fewer loopholes to
exploit.

5. Characterstics Of VAT
 The VAT is a form of indirect taxation. It is charged on the value of imports but It
is not charged on the value of exports.
 The VAT is a broad-based tax as it covers the value added to each commodity
by a firm during all stages of production and distribution. It applies to both
manufactured goods.
 It is a substitute for sales tax, hotel tax, contract tax, and entertainment tax
 It is a general tax levied on all goods and services, whether they are
manufactured locally or imported.
 A VAT is based on a value-added principle. Value-added can be obtained either
by adding payments to factors of production (i.e., wages+rent+interest+profit) or
deducting the cost of inputs from sales revenue

6. VAT RATES
 The first standardVAT rate (18%) applies to telephone,banking, insurance, restaurants
with alcohollicense, tickets to culturalevents and cinema, TVs, gaming consoles.
 The second standardVAT rate (12%) appliesto restaurants (non-airconditioned),
construction, intellectual property,some foodstuff, mobile phones.
 The reduced VAT rate (5%) applies to privately-provided transport,advertising, sugar,
tea and coffee, medicine.
 Indianzero-rated goods and services include basic foods, postal services, books and
newspapers.

7. How VAT is calculate
 VAT is actually calculated as the difference between input tax and output tax.
VAT = Output Tax – Input Tax
 Where output tax is the tax received by the seller for the sale of his goods and
services and input tax is the tax paid by the seller for raw materials required to
manufacture his goods and services.

8. VAT Example
 Suppose Ram owns a restaurant and spends Rs.50,000 towards obtaining raw
materials. Input tax is 10%, so input tax becomes 10% of Rs.50,000 = Rs.5,000
 Now after selling the food made by using the purchased raw materials, Ram was
able to make Rs.1,00,000. Supposing 10% output tax, output tax becomes
Rs.10,000
 So, final VAT payable by Ram comes out to be Rs.10,000 – Rs.5,000 = Rs.5,000

9. VAT Collection in India
 VAT Collection in India
The process of collection of VAT can be safely categorized into two broad heads based
on the method of collection of value added tax.
1 . Account-based collection of VAT
Under the account-based method of collection, sale receipts are not used, instead, tax is
calculated on the value added. Value added is calculated as the difference between
revenues and allowable purchases.
2 .Invoice-based collection of VAT
Under the invoice-based VAT collection, sale receipts or invoice is used to compute the
corresponding VAT. Traders when they sell their goods and services offer invoices
containing separate details of VAT collected. Most countries in the world today use the
invoice-based method of VAT collection.
Another way to categorize VAT collection is to classify it based on the timing of
collection.

10.  Accrual-based collection of VAT
Accrual-based collection matches the revenue with the period during which it is
earned and matches the cost of raw materials and expenses to the time during
which they were made. This method is extremelycomplicated as compared to the
cash-based collection of VAT. However, it also throws substantial light on
information about any business.
 Cash-based collection of VAT
Cash-based accounting is simpler than accrual-based calculation. Emphasis is laid on
the cash that is being handled instead of whether all the bills are paid. Whenever a
payment is received, that date is recorded as the date of receipt of funds.

11. Advantage of VAT
 As VAT is a consumption tax the revenue generated will be constant.
 Compared to other indirect tax VAT is easy to manage.
 Due to catch-up effect of VAT, it minimizes avoidance.
 Huge amount of revenue is generated on a low tax rate through VAT.
 As the VAT is collected in small installments so the consumers has
minimum burden.
 VAT is a neutral tax so it can be imposed on all types of business.

12. Disadvantage
 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 because they spend more proportion of their income.
 All purchase and sales records should be maintained which will cause
increased in compliance cost.
 The consumers need to be cognizant for successful implementation of
VAT otherwise tax negligence will be extensive through fake invoices.

13. VAT Registration
 VAT registration is mandatory for enterprises that make a turnover of more than Rs.5 lakh
by selling goods and services. All such enterprises are required to register in their
respective states of operation. Registering for VAT is necessary for enterprises to start
paying VAT. On registration, each trader is given a unique 11-digit registration number
which is used for all communication regarding VAT and its filing.
 Who should register for VAT?
 Any firm making a turnover of more than Rs.5 lakh per annum is required to register for
VAT payment.
 Documents required for VAT registration:
 Following is the list of documents that needs to be submitted while registering for VAT.
 Copy of PAN card
 Address proof of business
 Proof of identity of promoters
 Additional security deposit or surety
 How much time does it take to register for VAT?
 Generally, state governments take around 15-20 days to complete the process of
registration. This time may differ from one state to another.

14. VAT Terminology
Input VAT
 Input VAT is what makes VAT what it is, and it’swhat really differentiatesVAT from
sales tax.
Input VAT is the tax paid by the seller to its supplierson purchasesof goods and/or
services. The seller is paying the tax to its suppliers, but it is designed not to be a cost to
businesses. In most circumstances, Input VAT is recoverable(more on that in a second).

15. Output VAT
 This is one of the big tax types that you’llsee in the world of VAT.
Output VAT is the charge by the supplier (seller) to the buyer on taxable supplies
(sales) that is then remitted to the local tax authorities.
Most of the time, this is the VAT that sellers will charge and collect on their sales. Only
registered taxpayersmust collect output tax and remit it to the authorities (i.e., consumers
who are not taxablepersons will not collect).

16. Thank You...