UNIT II
VAT
Value Added Tax (VAT) is an indirect tax. It is a type of general consumption tax that is collected incrementally, based on the value added, at each stage of production or distribution/sales. It is usually implemented as a destination-based tax. It is also known as goods and services tax (GST) in some countries.
VAT, a general consumption tax, will apply to most transactions in goods and services. There are only a few items exempted from VAT in the UAE. A couple of items are zero-rated and the rest of the items are full rated or standard rated. The criteria for VAT registration will be on the annual turnover of the business entity. The government has tentatively decided to introduce VAT in the UAE by 01 January 2018. The proposed rate of VAT in the UAE is 5%.
INPUT VAT
Input VAT is the value added tax added to the price when goods are purchased or services are rendered. If the buyer is registered in the VAT Register, the buyer can deduct the amount of VAT paid from his/her settlement with the tax authorities.
OUTPUT VAT
Output VAT is the value added tax calculated and charged on the sales of goods and services.
EXEMPT SUPPLY
An exempt supply is a supply on which VAT is not charged and for which the related input VAT is not deductible..
For example: bare land, local transport, the sale of residential property (second sale onwards) lease of the residential property and certain financial services..
ZERO-RATED SUPPLY
A zero-rated supply is a taxable supply on which VAT is charged at 0% and for which the related input VAT is deductible..
For example exports, healthcare, education, international transport of passengers and goods, the first sale of residential property, medicine, and medical equipment, investment in gold, silver and platinum, crude oil & natural gas etc..
STANDARD RATE SUPPLY
A taxable supply at the Standard Rate is a supply on which VAT is charged at 5% and for which the related input VAT is deductible. All items which are not coming under both exempted category, as well as zero-rated category, are coming under standard rated supplies.
Illustration: In a return period, M/s Morning Place purchased the goods for Rs.200000/= and paid INPUT VAT Rs.10000/=. The accounts of M/s Morning Place are showing a balance of Vat Rs.1000/=. They sold the goods for Rs.100000/= and charged OUTPUT VAT Rs.5000/=. Calculate the Sales Tax liabilities of M/s Morning Place.
Solution:-
We shall calculate the tax liability of M/s Morning Place during a return period as under:-
Balance Brought Forward from Previous Return Period Rs. 1000/=
Add: Input VAT during current Return Period Rs.10000/=
Total Input Vat Rs.11000/=
Less: Output Vat Collected on Sale Rs. 5000/=
Balance of Input Vat to be carried forward to next
Return Period Rs.6000/=
In above case, there is no tax liability since the party has already paid more tax i.e. Rs.6000/=
Note:
Illustration:-
In a Return period, M/s ABC Limited purchased goods from local suppliers for Rs.500000/= and paid INPUT VAT for Rs.25000/=. They sold the goods for Rs.600000/= within the same state and charged Rs.30000/= as OUTPU VAT. They also sold the goods out of state for Rs.100000/= and charged Central Sales Tax (CST) @ 2% i.e. Rs.2000/=. Calculate the Tax Liability of the firm.
Solution:-
We shall calculate the sales tax liability of M/s ABC Limited as under:-
PARTICULARS AMOUNT(IN RUPEES)
Input Vat on Local Purchases 25000/=
Add: Opening Balance of Tax Credit / Input Vat NIL .
Total Input VAT 25000/=
Less: Output Vat on Local Sales 30000/=
Net amount of VAT to deposit with sale tax authorities 5000/=
Net CST to be deposited 2000/=
If any dealer is having turnover UPTO 50 LAKHS, he may apply for Composition Scheme.
Composition Scheme is not allowed in the following cases:
(i) If any dealer is procuring goods from outside the State or is selling or supplying goods to any place outside the State at any time during the year.
(ii) If he is registered under Central Sales Tax Act.
Salient features of the Scheme are as under:
(i) A dealer covered under Composition Scheme is not allowed to take VAT Credit on his purchases but he must retain all the tax invoices for the goods purchased by him.
(ii) A dealer covered under composition scheme is not allowed to issue tax invoice and also not allowed to charge any tax from the buyer rather he himself has to pay tax on his sales turnover ( @ 1% in Delhi).
(iii) The benefit of composition scheme is that dealer is exempt from maintaining lengthy records required under VAT.
(iv) If any dealer is purchasing goods from a dealer covered under composition scheme, no VAT credit is allowed to such a purchasing dealer.
(v) If any dealer is covered under composition scheme, he must purchase goods only from registered dealer.
(vi) If turnover has exceeded 50 lakhs, he has to shift immediately to the normal system.
(vii) If any dealer is covered under composition scheme, he may reject the scheme and may opt for normal procedure but only from beginning of the year.
(viii) If any dealer is opting out of the composition scheme, he will be allowed VAT credit for the stock held by him on the date of opting out.
A dealer has to apply in the prescribed form for opting the scheme and rejecting the scheme. A dealer opting for composition scheme has to apply in Form No. DVAT 01 under DVAT Act, 2004
The VAT Registration procedure is quite simple, but there could be minor differences for different states. In India, Tax credit method is used for Vat assessment and collection. The basic rate of value-added tax ranges between 4% and 12.5% for different categories of products and services.
The basic steps that are required for the VAT registration procedure are as follows:
1) The VAT registration application along with the required documents needs to be filled with complete information and then submitted to the functional local VAT office for the VAT registration.
2) The local VAT office shall conduct an inspection of the premises of the company within three days after submitting the application form.
3) Once the inspection has been made by the local VAT office, the relevant professional fee deposit fee needs to be paid.
4) After the payment of the fee deposit, the TIN No. will be allotted and the VAT certificate will be issued within a day.
How to Register for VAT Online?
VAT registration can also be done via the online method. The VAT registration online in India entails the following steps:
1) Log on to your state’s VAT website and then click on the registration tab
2) Add the required information and attach the necessary documents as a request for your company.
3) The company may be allotted a temporary VAT number.
4) Once the verification of the documents and the VAT registration application is done, the permanent VAT registration number will be allocated to your company.
5) Documents Required For VAT Registration.
The major documents that you will require to submit with your company’s VAT registration are-
1) Incorporation Certificate of Company (in case of Companies).
2) MoA (Memorandum of Association)and AoA (Articles of Association) in case of Companies.
3) Details of people involved in the firm.
4) Company’s Director address proof– Lease / Rental Agreement.
5) PAN Card of the company/ Individual PAN card in case of Proprietorship.
6) ID Proof of the Director of the company.
7) Rental/Lease Agreement of Company / Proprietorship.
8) Partnership Deed in case of a Partnership firm-
9) Passport size Photograph of Director of the firm.
The VAT registration process also requires the following documents from a company:
a) Name of the Dealer.
b) Company’s name.
c) Postal Address.
d) Telephone number.
e) Email id.
f) Details of Director/ Managing Director/ Partners / Proprietor.
g) Authorized Signatory’s details.
h) Pan number of the company.
i) Date of Commencement of Business.
j) Date of Birth/ Incorporation (in case of Company).
k) Nature of Business.
l) Commodities description.
m) Bank Account details.
n) List of Directors (in case of Companies).
VAT Registration Limit or Fees.
Here are the details of the VAT registration limit and the fees required for the same:
a) VAT registration fee – Rs.500.
b) Professional Tax Rs.1000 for sole Proprietor, Rs.1000 for each partner of the Partnership, Rs.2500 for Private Limited.
c) Rs. 2000 for turnover of Rs.0 to Rs.2.00lakhs.
d) For a turnover of Rs. 2.00 lakhs to Rs.10.00 lakhs – Rs.3000/-.
e) For a turnover of Rs.10.00 lakhs to Rs.25.00 lakhs – Rs.6000/-.
f) Turnover above Rs.25.00 lakhs – Rs.10000/-.
References:
