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Difference between VAT and GST

One of the main reforms in the Indian taxation system is the introduction of the GST, namely the tax on goods and services. It aims to remove the cascade effect, i.e. double taxation. The GST a tax on adding value, tax on the production, distribution and consumption of goods and services. commonly inconsistent with value added tax, in short known as VAT, that an indirect tax collected at each stage of the production and distribution of goods on the incremental value.

The main difference between VAT and GST is that while VAT applies to the sale of goods, GST applies to the supply of goods and services. So, this article will clarify, all doubts and misconceptions about the two types of tax regimes in India take a reading.

Comparative graph

Basis for comparison I.V.A.GST
Sense VAT is a consumption tax, which is levied on value added, at every stage of production / distribution of goods. GST a tax based on the destination, charged on the production, sale and consumption of goods and services.
Taxation point Sale of goods Supply of goods and services
Payment method disconnected on line
registration Mandatory if turnover above 10 lakh. Mandatory if turnover above 20 lakh.
Tax base Summary based Transaction based
Revenue Collection The seller state collects revenue The consumer state collects revenue
excise duties levied, on the production of goods subject to excise duty. Not picked up.
Interstate sales Incoming credit is not possible in case of interstate sales. Incoming credit can be used for interstate sales.

Definition of VAT

Value added tax, or otherwise called VAT, is a multi-point taxation system, in which the tax levied by the state government, at every level of production / distribution of goods.

In this regime, the tax is levied on the incremental value of the assets, to eliminate the cascade effect, at different sales levels. a type of consumption tax, in which the added value made by the company equals the difference between the proceeds and the cost of the purchases.

It allows the buyer of the goods to take advantage of the tax credit, or the tax paid in the previous phase will be deducted from the net tax debt. To take advantage of the VAT tax credit, each retailer is required to register.

In this system, VAT applied to different types of rates, 0% for agricultural goods and objects of social importance, 1% of gold and silver jewelery, 4% of raw materials or inputs used in production and goods instrumental, 20% in luxury items and the remaining items are taxed according to the normal rate of plates, or 12.5%.

Definition of GST

GST stands for Tax on goods and services, which is a value added tax based on the destination applied to the production, sale and consumption of goods and services. It is important to note that the GST applies to the addition of the value in each phase and that no tax would be applied, which translates into the elimination of the cascade effect.

In this system, the supplier of the goods or services eligible for the input tax credit, i.e. the GST paid for the purchase of goods, will be compensated with the GST payable on the supply of goods and services. Therefore, ultimately, the end consumer bears the tax imposed by the last supplier in the distribution chain.

In India, the double TSO has been implemented, which is simultaneously imposed by the central and state government to tax goods and services. The Center applies the tax on intrastate sales, called CGST. States apply taxes on services, called SGST andUTGST in the case of Union territories. For the interstate supply of goods and services that are taxable, they are covered by IGST, ie the integrated tax on goods and services.

There are many indirect taxes, which are summarized after the introduction of GST in India, which are as follows:

  • At CGST level : rights of excise duty, service tax, surcharge and cess
  • At SGST level : prepaid or entry taxes, VAT, luxury tax, surcharge and cess
  • At the IGST level : central sales tax

GST plates are fixed at 5%, 12%, 18% and 28%.

Key differences between VAT and GST

The fundamental differences between VAT and GST are explained, with the help of the following points:

  1. VAT or Value Added Tax an indirect tax, in which taxes are imposed at the state level, at each stage of the production and distribution of goods and services, with credit for the taxes paid in the previous stage. GST expands to the tax on goods and services, which a single tax, imposed on the supply of goods and services which is based on the principle of adding value.
  2. While VAT taxes on the sale of goods, in GST the tax point is the supply of goods and services.
  3. VAT registration and payment are performed offline, while GST is completely an online system, in which registration, return archiving and all other functions can be performed through a common GST portal managed by the network of goods and services ( GSTN).
  4. When it comes to supplier registration, registration in the VAT system becomes mandatory when the supplier turnover exceeds Rs. 10 lakh. On the contrary, if the total turnover of the supplier exceeds Rs. 20 lakh, so he / she is required to obtain registration under GST.
  5. The VAT system is a summary based taxation system, in which the seller of the goods must present the return at the end of the specified period. In contrast, GST is a transaction-based taxation system.
  6. In the case of VAT, the seller status collects the revenue, while, in GST, the revenue collection is carried out by the consumer status.
  7. In the VAT system, the producer of excise goods pays excise duty on its production and VAT on intra-state sales, which results in double taxation. On the other hand, excise duties fall within the TSO and therefore there is no possibility of double taxation on these items.
  8. Under the VAT system, the tax credit cannot be used in the case of interstate sales. For example: suppose that central excise duty (CENVAT) is applied for the manufacture of fabrics and that VAT is imposed on its sale within the state. Although both CENVAT and VAT are both value added tax but they are not possible, since CENVAT withdrawn by the central government and the state government imposes VAT. Otherwise, the GST is based on the "one nation one tax" principle, therefore a tax credit is available for interstate sales.

Conclusion

In general, VAT emerged as a reform of the old sales tax to largely remove the chain effect. Likewise, the TSO was adopted with respect to VAT, which included other taxes, such as excise duties, the surcharge, the extinction, the input tax and so on, which also improved the tax system in India.