Saturday, September 30, 2023

What Is Value Added Tax In India And Does It Still Apply?

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Shreya Christina
Shreya has been with for 3 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider team, Shreya seeks to understand an audience before creating memorable, persuasive copy.

Since GST, there hasn’t been much talk of value-added tax – right? VAT is the consumption of tax on goods and services levied at every stage of the supply chain, where value is added, from initial production to the point a product is sold. The VAT a user pays depends on the cost of the product, minus the material costs used in that particular product and already taxed in the previous stage. We cannot explain VAT in one paragraph. We need to know everything from A to Z. So here we are going to talk about value added tax.

What is Value Added Tax?

VAT is a type of tax that is applied to the sale of goods and services when they are eventually sold to the customer. VAT is an essential part of the GDP of any country. While VAT is collected on the sale of goods and services and paid by producers to the government, the actual tax is levied on customers or end users who purchase these goods and services.

As a result, it is an indirect tax paid by customers to the government through producers of products and services.

VAT is a multi-stage tax levied at each stage of the production of products and services where goods and services are sold/purchased. Anyone who earns more than Rs.5 lakh in annual income from the supply of goods and services is required to register for VAT payment.

Value Added Tax in India is levied on both domestic and imported goods.

What was the impact of VAT?

India was one of the last countries to introduce VAT as a tax. India’s tax system was most exploited by businessmen and corporations that discovered loopholes to avoid taxes. VAT was introduced to reduce tax evasion and ensure openness and uniformity in the tax payment process.

Value Added Tax is levied at different stages of the production of products and services and administered by different state governments. As a result, VAT in India may vary slightly from state to state.

  • There are no exemptions under the VAT system. Taxation at every level of the manufacturing process ensures greater compliance and fewer loopholes to abuse.
  • The VAT, when applied effectively, serves as an important tool for tax consolidation in the country and as such contributes to some extent to the solution of the budget deficit problem.
  • As VAT is a widely accepted tax system, it will help India to better integrate into global trade patterns.

While we’ve covered all of this, there are a few negatives to VAT. Do you want to get to know them? Here they are mentioned below.

The disadvantages of VAT

  • Taxes have a cascading effect.
  • It was not feasible to claim Input Tax Credit (ITC) on VAT registered services.
  • Different states have different tax rates.
  • Each state has its own sales tax law.
  • CST entry cannot be offset against VAT and vice versa.

Is VAT still applicable in India?

The answer to this can be said to you in the following way.

Value-added tax implementation guidelines and procedures differ from state to state, as the tax is collected by state governments.

None: This category of goods and services is exempt from VAT. These are the most basic goods sold in the unorganized sector. Khadi, salt and other such products are examples.

  • The articles in this category are subject to VAT at a rate of 1%. 1% VAT is often charged on relatively expensive items. The reason that 1% VAT is charged on expensive goods is that increasing the VAT rate will significantly increase the prices of the items in this category. Products that fall under this category include gold, silver, gemstones, and so on.
  • VAT is levied on various items in daily use at a rate of 4% to 5%. Cooking oil, tea, medicines and other things are examples of items that are subject to 4-5% VAT.
  • General: Items in the general category are subject to VAT at a rate of 12% to 15%. This category mainly includes luxury things like cigarettes, wine, and so on.

Did you know about VAT registration? If you don’t, stay put. We can learn it here.

What is VAT registration?

VAT registration is required for all manufacturers participating in the production of goods and services. The registration procedure involves designating the company as a company that is eligible to file a VAT return with the government. Under the VAT Registration Act, all businesses are required to register for VAT payments. It is possible to register online, which makes the process quick and efficient.

These are the steps to register for VAT online:

  • Navigate to the official VAT portal. Log in or register via the registration tab.
  • Fill in all requested information. Please remember to include scanned copies of the required paperwork with your application.
  • You can now get a temporary VAT number.
  • However, once the authorities have completed the verification of the facts provided, the company will be given a permanent VAT registration number.

So this is where we end up hoping you understand VAT in India.


Most view taxes as a burden because it costs us more. But in reality it is the gratitude for improvement. It’s always good to know more about these taxes, and it’s great that you’ve read this value-added tax piece.

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