Overview of vat gm foundation-3

Overview ofValue Added Tax
22nd May 2015
V. Ramaratnam & Company,
Chartered Accountants,
Chennai.
Reach us at info@vramaratnam.com
Visit us at www.vramaratnam.com
V Ramaratnam & Company,
www.vramaratnam.com.

Things to follow
—  Value Added Tax – What It is all about
—  History ofVAT
—  Operation ofVAT
—  Scope of Goods Covered
—  Variants ofVAT
—  Merits ofVAT
—  Demerits ofVAT
—  Input Tax Credit
—  Small Dealers & Composition Scheme
—  VAT Incentives
—  Other Relevant Matters

Value Added Tax
—  What It is All About
It is levied
§  At multiple stages of sale
§  Each time on the “Value Added” (Value Added = Sale Price – Purchase Price of
goods)
§  By computing VAT on sale price and allowing credit / set-off of taxes on inputs /
capital goods
§  Thus,VAT = Tax on Sale – Tax paid on purchases of inputs / capital goods
From Individual Perspectives
Buyer -> It’s a Tax on the Purchase Price
Seller -> It’s a Tax ONLY on the value added to a product / material / service.

History ofVAT
—  The VAT, as a concept was first conceived by Dr.Wilhelm Von Siemens, a
German Industrialist in 1918.
—  However, the VAT, as an accounting method, as a tax levy scheme was later
introduced in public domain by Mr. Maurice Laure, Director in charge of
Taxation in France in early 1954.
—  Thus,VAT made its entry into product – tax levy arena.
VAT in India
—  Having formed a committee in 1994, the Central Govt. came out with a
White Paper in 1999 & eventually managed to introduceVAT in 2005.
—  After Haryana placed itself as the first state to levy VAT, now presently all
the States & UT of our Nation has its own system to levyVAT
—  TN Govt. imposedVAT on its product sales from 01st January 2007

Operation ofVAT
—  A [Raw Material Seller] to B [Manufacturer]
—  Price = 100 +VAT 4
—  B now makes the Finished Goods
—  B [Manufacturer] to C [Distributor]
—  Price = 250 +VAT 10 [4% of 250]
—  Now, PayVAT in Cash = 10 – 4 [ Input Tax Credit] = 6
—  C now finds the Retailer
—  C [Distributor] to D [Retailer]
—  Price = 300 +VAT 12 [4% of 300]
—  Now, PayVAT in Cash = 12 – 10 [Input Tax Credit] = 2
—  D now delivers the goods to End-User
—  D [Retailer] to E [Customer]
—  Price = 400 +VAT 16 [4% of 400]
—  Now, PayVAT in Cash = 16 – 12 [Input Tax Credit] = 4
—  The Govt. gainsVAT of 4 + 6 + 2 + 4 = 16 [i.e. 4% of Final Sale Price = 400]

Scope – Goods Covered
—  Based on TNVAT, 2006
5 % 14.5 % Special Rates Exempt
ITC -Yes ITC -Yes ITC - No ITC - No
Gold Jewellery
AC
Refrigerators
Alcohol for
Human Cons.
[58 / 14.5]
Fruits &
Vegetables
Medical
Equipments
Health Fitness
Equipments
Aviation Turbine
Fuel [29]
Millets
Paper
Mobile / TV /
DVD
Petrol [27]
Agriculture
Implements
Plastics &
Granules
Cement Diesel [25] Cattle Feed
Readymade
Garments
Any other Good Cigarettes [20] Milk

Variants ofVAT
Particulars Gross Product Income Consumption
Tax On Sale Price Levied on Each Sale
Less : VAT Paid
on RM [Inputs]
Allowed
Less: VAT Paid on
Capital Goods
[CG]
Not Allowed
Allowed only to
the extent of
Deprecation
Allowed
Effects
Tax on CG is
added to Cost,
hence overvalued
Difficulty exists as
to measure the
depreciation
Neutral Method
WE FOLLOWTHIS

Merits ofVAT
—  No Tax Evasion – it’s a logical beauty
—  Neutrality – I buy the products I wish; produce the way I plan
—  Transparency – Happy to know how much I really share
—  Better Revenue Collection – Taxmen are happy too
—  No effect on Sale Price – My Customers aren’t overcharged

Demerits ofVAT
—  Multiple Rates – How many rates do I have to know & pay then
—  CST vs. StateVAT – Oh no, I can’t buy from the neighboring states
—  Documentation – I lost my purchases bills and I lose my ITC too
—  Working Capital – Unhappy to hold money always to pay someVAT
—  Administrative Cost – State-run Govt. incurs costs & time

Input Tax Credit
—  ITC = Input Tax adjusted / rebated / deducted from the Output Tax
—  Yes, I can avail ITC, if I have purchased goods for
o  Intra Sale Trading [I play within the State]
o  Inter State Trading [I also sell outside my business state]
o  Use in Manufacture of Goods [I use them in making the goods which I got to sell]
o  Use in Manufacture of Specified Goods [I use them in making Export Goods]
o  Use in Works Contract [ I executeWorks Contract & I use them there]
o  Use as Capital Goods [These goods are meant for production technique]

Input Tax Credit
—  And I lose my ITC in these instances
o  Dealer Specific [No purchases from Unregd. / Dealer with Comp.Scheme]
o  Invoice Specific [No ITC where Invoices do not showTAX amt Or I lost it]
o  Location Specific [No purchases from Outside India OR Other States]
o  Usage Specific
o  I used them in making exempted goods
o  Used for personal use
o  Goods stolen / damaged inTransit / returned
o  Given away free of charge as gifts

Small Dealers
—  I do a business having a turnover less than Rs.10 Lakhs [TN , it is 5 Lakhs]
o  Now, I’m not required to REGISTER forVAT
o  Also, Not required to pay anyVAT or avail any Input Tax Credit
—  Next phase, My turnover is more than 10 Lakhs but less than 50 Lakhs
o  Now, I can opt for Composition Scheme
o  Its an OPTIONAL Scheme
o  TAX payable = Gross Turnover * Specified % of Rate
(Differs for States / Products)
o  No Input Tax Credit is allowed

Composition Scheme
—  Merits
—  Simple to Calculate the Tax Amt [No Complicated Maths]
—  Very Small Quantum of Tax [Economical to the business scale]
—  Simple in Maintaining Records [No more cumbersome books]
—  Neutral About my Purchases [Anyways, I’m not claiming ITC]
—  Demerits
—  When I buy from People
◦  VAT is on my account [Losing ITC on my Purchases isn’t fine all the times]
—  When People buy from Me
◦  Less takers for my Goods [Since they aren’t eligible to avail ITC]

VAT Incentives
—  Composition Scheme
◦  Dealers who effects second & subsequent sale in the State – Rate = 0.5%
◦  Dealers who execute Works Contract – Rate = 2% [Civil] & 4% [Others]
◦  Dealers – Hotels / Restaurants / Sweet Stalls – Rate = 2% [Originally 4%]
—  Exemption Scheme
◦  Allowed on basis of Quantum / Period / Both
◦  I’m not required to pay anyVAT Amounts, either on my Purchases or Sales
—  Deferment Scheme
◦  I do payVAT on my purchases and make / trade products
◦  Now, I do collect theVAT amounts on my output from the Buyer
◦  However, I DO NOT have to PAY them IMMEDIATELY to the Govt.
—  Remission Scheme
◦  I do payVAT on my purchases and make / trade products
◦  Now, I do collect theVAT amounts on my output from the Buyer
◦  However, I DO NOT have to PAY them to the Govt. at all.

Other Relevant Matters
—  Time Frame – Availment of Input Tax Credit – Inputs / Capital Goods /
Zero Rated
—  Time Frame – To Maintain the Books / Dept. can come back for probe
—  Time Frame – Return Filing & Revisions thereupon
—  Allotment of TIN [ 11 Digit Unique Identification Number ]
—  ITC against CST vs. CST Tax againstVAT
—  VAT Audit – Turnover of Rs.100 Lakhs
—  VAT Scrutiny – 20% of Total Assessment [Random Scrutiny]

ThankYou All !!
—  The Way Forward, the GST

Overview of vat gm foundation-3

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