What is VAT
Value Added Tax is a multi point sales tax with set off for tax paid on purchases. It is basically a tax on the value addition on the product. The burden of tax is ultimately born by the consumer of goods. In many aspects it is equivalent to last point sales tax. It can also be called as a multi point sales tax levied as a proportion of Valued Added.
Items covered under VAT
- All business transactions that are carried on within a State by individuals/partnerships/ companies etc. will be covered under VAT.
- More than 550 items are covered under the new Indian VAT regime out of which 46 natural & unprocessed local products will be exempt from VAT
- Nearly 270 items including drugs and medicines, all industrial and agricultural inputs, capital goods as well as declared goods would attract 4 % VAT in India.
- The remaining items would attract 12.5 % VAT. Precious metals such as gold and bullion will be taxed at 1%.
- Petrol and diesel are kept out of the VAT regime in India
What is Sales tax
Sales tax is a tax that is levied on the final products and the consumer is aware of exactly how much of it he is paying.
The burden of the VAT is, however, not felt by the consumer as much as the Sales Tax is. Since it is imposed during production itself it does not affect the buyer unlike the sales tax which increases the price of a commodity.
The effect of the VAT is felt equally by the consumers as well as the producers because the same amount of VAT levied on the product is also charged from the producers, despite their position or social standing. However, Sales Tax is borne solely by the consumers.