Are you know that what is VAT and what is the impact of this VAT on the personals. VAT means Value Added Tax is an indirect tax that is collected by the government. This tax is collected by the both governments, one is central government and other is state government. Different governments imposed different rate of VAT, from this the rate of same good is varied from state to state. This is negetive point of this tax that the same good has different prices in same country.
What is VAT?
VAT means Value Added Tax, VAT is a tax on value added to manufactured items or goods produced in the country. Now you want to know that what is value added? Value added is an estimated by the difference between the value of a product and the cost of producing it. It is the matter to notice that the VAT is not applicable on services, it includes only physical products. Since service tax is levied separately on the services.
Types of VAT?
There are two types of VAT in India.
- Central Value Added Tax (CENVAT)- VAT at the level of Central Government, is called the central Value Added Tax (CENVAT). The rate of CENVAT is 12%, presently. However some goods are exempted from this tax and some goods have so heavy tax like luxury goods that attract a rate of 27% VAT.
- State Level Value Added Tax (State Level VAT)- This tax is collected by the states and they have different rate of tax on different items.
The collection of VAT or Excise Duty has an important part in the source of government revenue. Five years ago the contribution of this tax was more than 20% while now the contribution is around 17.5% of the tatal revenue collected by the government.
VAT has some challenges that the overall tax structure is so complex and the additional duties and surcharges also levied. However, it does not include the services.
What is CENVAT Credits?
As we know that VAT is charged to the customer at the point of sale of manufactured goods, every time a producer purchases an input goods, a VAT is payable. Now the Government allows the final VAT payable by a manufacturer to be set off by CENVAT credits as VAT already paid on inputs.