Value Added Tax (VAT) is a multi-stage tax levied by States on business entities engaged in sale of goodsin India. It is an indirect tax introduced in India from April 1, 2005 and is governed by the Value Added Tax Act and its associated VAT Rules. Each State has its own VAT act which governs the payment of VAT in that particular State, for example West Bengal VAT Act, 2005, Andhra Pradesh Value Added Tax Act,2005, etc. as amended from time to time. It is a multi-stage taxation because it is collected by States at each stage of production and distribution process. Tax is charged on the sale value of goods and input tax credit is given for tax paid on purchase price of inputs (raw materials).
Who is liable for VAT Registration?
Any person involved in the business of trading or manufacturing business and sells its goods is liable to register for VAT. The business may be in the form of sole proprietorship or partnership or private limited company. Again, certain commodities are exempted goods under VAT like salt, dealers of which do not require VAT registration.
When do you need VAT Registration?
Whether a business entity requires VAT registration or not depends on the State in which the business is operating. States do not require VAT registration unless the annual gross turnover of the entity for the current yearexceeds certain threshold limit. Threshold limits for certain States are:
West Bengal – Rs. 10 lakhs
Maharashtra – Rs. 10 lakhs
Delhi – Rs. 20 lakhs
Gujarat – Rs. 5 lakhs( importer, dealer in inter-State transfer of goods, registered under CST – mandatory)
Andhra Pradesh – Rs. 40 lakhs
Karnataka – Rs. 10 lakhs
Tamil Nadu – Rs. 5 lakhs
Bihar – Rs. 10 lakhs
Punjab – manufacturer (1 lakh), hotel/restaurant (5 lakhs), bakery (10 lakhs), inter-State trading (mandatory)
Haryana – importer/manufacturer (1 lakh), hotel/restaurant/voluntary registration (5 lakhs), bakery (10 lakhs), any other person (50 lakhs), registered under CST (mandatory)
Goa – importer/manufacturer (5 lakhs), others (10 lakhs)
Rajasthan – importer/registered under CST – mandatory, manufacturer (2 lakhs), other dealers (10 lakhs)
When the annual turnover of a business entity situated in a particular State does not exceed the prescribed threshold limit, no registration is required. The entities required to get registered must register themselves within 30 days from the date when their turnover exceeds the prescribed threshold limit.
Such entities are liable to pay VAT @ 1% or 4% or 12.5% as charged by the States on the goods sold by them.
Compulsory Registration or Composition Scheme?
A dealer who is liable to pay VAT with an annual turnover not exceeding 50 lakhs can opt for Composition Scheme, however, exceeding such limit requires an entity to compulsorily register for VAT. Composition Scheme enables an entity to pay a certain smallpercentage of tax on the gross annual turnover or taxable turnover instead of paying VAT as charged by State. Persons opting for this scheme cannot claim input tax credit for input tax paid by him on purchase of inputs, which is a drawback of the Composition scheme. On the positive side, this scheme simplifies tax calculation of small dealers since a very small tax is payable and saves them from the labour and cost of maintaining records except records for purchase, sales, inventory which should be maintained.
Persons not eligible for Composition Scheme –
- Persons engaged in inter-State trade and commerce
- Persons engaged in import/export of goods
- Dealer/manufacturer making inter-State purchases.
Let us move to the procedure now.
- A person can file an online application for VAT Registration on the website of Directorate of Commercial Taxes of the particular State. The applicant must go through the instructions or the user manual given on the website before filling Form 1with the required details. A valid email id for future correspondence and a PAN No. are the prerequisites for VAT registration. The applicant has to pay a security deposit for an amount ranging from Rs. 5000-25000 which differs from State to State.
Sample Form 1 for VAT registration is available on this link: http://www.wbcomtax.gov.in/Act_Rule_Schedule_Form/vatforms.htm
Documents required are:-
-Trade Licence of principal place of business and branch office, warehouse, if any
-PAN Card of Company/ Partnership firm/HUF
-PAN card of Proprietor/ Partner/Director /Karta of HUF
-Proof of Residence of the applicant individual (Vote Id Card/ Aadhaar card/ passport/ Electricity Bill)
-Professional tax registration no. Or PT Enrolment No.
-Copy of rental agreement or proof of ownership of the business place
-Four Passport size photographs of Proprietor/ Partner/ Director
-Details of business activities
-Partnership Deed/ Memorandum of Association and Articles of association
-Bank Details (Bank Statement of Current Account)
- The applicant has to upload the scanned copy of these documents along with the copy of challan of payment of security deposit.
- After submitting the form and documents, the website will generate an acknowledgement slip with a number which can be used to check the application status later.
- An officer from the jurisdictional VAT office will come to inspect the premises of the business entity within seven days from submission of the application.
- Once the inspection is over, the applicant has to pay a fee for an amount ranging from Rs. 500-2000 depending on the turnover of the entity for VAT registration to the local VAT office. Thereafter, a Tax Payer’s Identification Number (TIN) will be allotted to the applicant which is an 11-digit number and the Certificate of Registration will be granted to him within 30 days.
The dealer can now make the payment of VAT and avail input tax credit after his registration.