Homework What do you mean by input tax credit?

VALUE ADDED TAX Introduced in the country with effect from 1.4.2005. State of Hariyana had introduced in VAT From 1.4.2003 itself Objectives of VAT 1. Simplification of tax procedure 2. Uniformity in tax rate 3. Abolishing of all the other taxes like turnover tax, surcharge etc 4. Reduction in the general price level 5. Transparency in tax charged by different states 6. Higher revenue growth as more people come in the tax net 7. Checking income tax evasion Tax Cascading Value addition Value addition simply means expense plus profit of the seller. In other words; Value addition = Sales purchase. Thus VAT = t(O) t(I) t(O) = output tax & t(I) = input tax Under this system the trader gets credit for the tax already paid by him VAT at different stages SALIENT FEATURES OF VAT 1. Tax is paid at each point of exchange where value is added 2. It is a charge on the difference between the sales price of goods and the purchase price 3. The final consumer bears the whole tax 4. It is a multipoint tax as against single point tax

5. It avoids tax on tax 6. Trades does not pay tax from his pocket 7. VAT is collected even when the sale is by one seller to another seller BASIC VAT RATES
a) 0% VAT on natural and unprocessed products of the unorganized sector, goods for export,

supply to SEZs, supplies to international sea and air carriers, etc. Need not pay VAT but input tax credit is available. b) 1% VAT on items like gold, silver ornaments, precious stones etc c) 4% VAT category has largest number of items consisting of basic necessities, industrial, agricultural raw materials, declared goods, etc d) 12.5% on all the items which do not fall in the above category
e) Exempted category No VAT is charged an no input tax credit is available eg; organic

manures DEFINITIONS Input tax (Sec 2 (xxiii))

Input tax means the tax paid or payable under this Act by a registered dealer to another registered dealer on the purchase of goods in the course of business and includes the tax paid on the purchase of materials for the research and development in relation to any goods. Output Tax (Sec xxxi))

It means the tax charged or chargeable under the Act by a registered dealer for the sale of goods in the course of business and includes reverse tax levied under section 11 of the Act. Reverse Tax (Sec xlii))

It means that portion of input tax of goods remain unsold at the closure of business or are used subsequently for any purpose other than resale or manufacture of taxable goods or execution of works contract or use as containers or packing material of taxable goods within the state. Taxpayers Identification Number (TIN)

All tax payers will have TIN. This number will consist of 11 digit numerals throughout the country. The first two characters represent state code as used by the Union Ministry of Home affairs. The next nine digits are different for different states.

ADVANTAGES OF VAT 1. Simple to calculate 2. Self assessment is available 3. Thos having turnover less than 50 lakhs need to ay presumptive tax (0.5%) only. Therefore marginal traders are not affected 4. Uniformity in prices throughout the country 5. Simple to administer 6. Trader can file objections if any 7. No VAT on exports 8. Other taxes are avoided 9. Overall tax burdened thus rationalized 10. Prices tend to fall 11. Increase in transparency 12. High revenue growth in long run AUTHORITIES UNDER VAT Act 1. Commissioner 2. Appellate tribunal 3. Settlement commission INCIDENCE AND LEVY OF TAX Following persons are liable collect and remit VAT1. Every dealer whose turnover exceeds Rs. 10 lakhs

2. Every importer 3. Every casual trader 4. Agent of a non-resident dealer 5. A dealer in jewellery of gold, silver, etc

6. Contractor 7. Central, state, UT 8. Local authority 9. Any autonomous body LIABILITY TO PAY TAX Liability to pay tax shall be on the taxable turnover based on the following provisions: 1. Goods specified in the first schedule is exempted from tax 2. Goods specified in the II & III Schedules are charged at 1% & 4% respectively 3. Goods specified in the fourth schedule is out side the purview of tax 4. Goods not coming under Schedules II, III & IV is charged at 12.5% PAYMENT OF PRESUMPTIVE TAX Any registered dealer whose total turnover for a year is below 50 lakh rupees may pay at his option tax at the rate of % of the turnover of sale of taxable goods as presumptive tax. To avail this facility the dealers total turnover shall be less than prescribed limit consecutively for three years. Dealers falling under the following category cannot avail this facility a) An importer b) A dealer making sale in the course of interstate trade or export c) A dealer registered under CST Act 1956
d) A dealer dealing in goods falling under Schedule I of the Act

e) A contractor

VAT and Hospitality Industry Any dealer in cooked food and beverages including beverages prepared by him other than a dealer supplying cooked food or beverages to any airline service company or institution or shipping company for serving in aircraft, ships or steamer or bar attached hotel or star hotel, MAY at his option pay only presumptive tax @ half percent of the turnover of the cooked food and beverage prepared by him.

Any bar attached hotel, not being a star hotel of and above three star or a club or a heritage hotel MAY also pay tax at 12.5% f the turnover of the cooked food and beverages prepared by it. REGISRATION The following persons are liable to be registered under the VAT Act. 1. Every dealer whose total turnover is not less than 5 lakh rupees 2. Every casual trader 3. Every dealer registered under KGST / CST Act 4. Every dealer in Bullion , 5. Every dealer residing outside the state, but carrying on business inside the state. 6. Every agent of a non-resident dealer 7. Every commission agent, broker, auctioneer, etc Certificate of Registration -

Issued in Prescribed form Has to be displayed by the dealer (incase of more than one place of business, certified copies must be displayed) To be renewed every year (Rs. 500/- normally and 1500/- for importers) Can cancel the registration if turnover falls below the prescribed limit for two consecutive years When a dealer ceases business, he shall intimate the registrar so that he need not pay registration fee until he resumes business For conducting exhibitions, exchange melas etc, written permission is required (fee Rs. 500) Every registered dealer will be issued an electronic identity card (Rs. 500) If registration card is lost renewal fee is Rs. 250/-; for electronic ID card Rs. 50/-

Issue of permits Every registered dealer who transacts business other than registered place or who employee a travelling sales man shall obtain permit issued by the registrar.

FILING OF RETURNS Returns to be submitted monthly and annually. Every dealer whose tax liability is more than Rs. 10, 00, 000 for the previous year Before the 10 day of the month following the return period. In the case of any other dealer - Before the 15 day of the month following the return period. Annual returns to be submitted on or before April 30 every year.