How to Register VAT in India

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What is the VAT (Value Added Tax)?

Introduced in India since 1st April 2005, the Value Added Tax (VAT) is a type of consumption tax which is charged at every stage of transaction of goods and products, during the entire production/supply chain. The seller at any stage in the supply chain, charges this tax from the immediate buyers, and remits the same to the concerned State Government. Here, it may be noted that, from the procurement of the law materials to the sale of the final products in the market, there are present many stages. The VAT is charged from companies and agencies which are engaged in these all separate stages of manufacturing, packaging, distribution, and marketing and sales. This indirect tax of VAT has been a very significant and influential tax reform during the post-liberalization period in the countries world over. In India, this VAT system has efficiently replaced the earlier Sales Tax system in most of the States of India. Till 2012, the number of Indian States and UTs following the VAT system was 33.

This VAT is a very elegant means to avert the tax evasions and the cascade effect of multiple sales taxes, by taxing only the Value Addition at every stage of transaction of the concerned good or product in the entire supply chain. The Value Addition at any stage is equal to the appreciable difference between the sale price charged from the customer, and the total cost of all materials and resources utilized in processing the given good or product, along with the input taxes.

As VAT is essentially a tax levied on the sale of purchase of goods and products within a State, VAT is essentially an exclusive subject of the Indian States, by virtue of the Entry 54 of the State List of the Seventh Schedule of the Indian Constitution. The State Governments through their respective Commercial Tax Departments, are responsible for levying and collecting VAT within their respective jurisdiction, and the Central Government of India through its Ministry of Finance, facilitates rigorous implementation of its rules and regulations in connection with collection of VAT and other direct and indirect taxes in all States of India.

Who Require VAT Registration?

Any company or firm, the annual turnover of which exceeds the VAT Exemption Threshold prescribed by the concerned State VAT legislation, is required to obtain VAT Registration. In most of the States of India, this threshold is kept at INR-10Lakhs. Thus, a business or professional entity with an annual turnover exceeding INR-10 Lakhs, is compulsorily required to get vat registration. This vat registration is also mandatory when the dealer is an importer, or does business at central level, and is required to register himself under the CST 1956. A dealer or company can also opt for getting registered under VAT voluntarily, even if his/its turnover is less than INR-10 Lakhs. Again, the VAT Returns are to be submitted on the monthly, quarterly, half-yearly, or on the yearly basis, as notifies by the relevant State Government from time to time. Here, it may be added that, these companies or firms liable for vat registration, could be engaged at any stage of the production, distribution, or supply chain, in the business of any manufacturing, commercial, professional, or the service sectors. The best time for obtaining vat registration is well before the commencement of commercial activities in any of these economic fields. However, a dealer may be allowed a time limit of thirty days for acquiring vat registration, after the due date. Here, may also be inserted that there is provision for penalties, for those who fail to get registered under the VAT punctually.

Tax Payer's Identification Number (TIN)

After proper vat registration, the applicant is granted a TIN along with the VAT Registration Certificate. This Tax Payer's Identification Number (TIN) used in States all across India, serves as a unique identification of the company or firm to the Commercial Tax Department of the concerned State, in respect of tax collection. The TIN comprises of 11 digit numerals in all States of India, with the first two characters representing the specific State Code. The TIN is absolutely essential for issuing tax invoices by the dealer. In other countries, including the countries of the European Union a VATIN (Value Added Tax Identification Number) is used for these purposes.

Method of VAT Assessment in India

The method of VAT assessment and collection is different in different countries of the world. In general, the most common and popular methods for VAT evaluation and collection are the – Addition Method, Subtraction Method, and the Tax Credit Method. In entire India, the method strictly followed for VAT assessment and collection is the Tax Credit Method, which is quite similar to the Central Value Added Tax (CENVAT). The Central value Added Tax (CENVAT) is associated with the rationalization of the Central Excise Duty structure of India. At present, the standard and uniform rate of CENVAT is kept at 16% for most of the inputs and final goods and products. However, to give stimulus to the manufacturing sector of the country, this CENVAT is proposed to be reduced to 14%.

Standard VAT Rates in India

The basic and standard rates of VAT levied in most States of India are at present 12.5% and 4%, which are charged depending on the type and nature of the general goods, products, and services. In addition to these VAT taxation rates, there are an exempt category of goods and products (under the zero rate bracket), and a category of special VAT rate of 1%. Goods and products of the basic necessities fall under the exempt category, while the gold, silver, and other precious metals and gems belong to the 1% schedule. Again, some goods and products are charged to higher rates than 12.5%, which includes petroleum and petroleum products, natural gases, gases used as fuels, wines, beers, and so on.

Benefits of VAT Registration

The following are the main and outstanding advantages obtainable from making VAT Registration:

• Requisite TIN is obtained for issuing Tax Invoices to parties
• Benefits of the Input Tax Credit.
• The current Tax Status of your business is promptly accessible online, with the help of TIN
• In general, the tax liabilities of a registered dealer or company are considerably lower than that of an unregistered one.
• Security, Credibility, and Creditability of your business are highest, when adorned with vat registration.

Procedure for VAT Registration

Any enterprise, agency, company, or firm which is bound to make commercial transactions and issuing tax invoices, can apply for vat registration to the Commercial Tax Office of the related State. Along with the VAT application form, all necessary documents, and the prescribed fees, which are described in the lower sections, are to be submitted. Here, described exclusively is how to register vat with the Sales Tax Department of any State of India. Today, the online vat registration facilities are also available in most of the States of India.

• Submitting the flawlessly completed VAT registration Form -1, together with demanded documents and fees.
• Authorities of the concerned commercial tax office will then inspect the premises of the business, and the documents submitted.
• After inspection and payment of all requisite fees, the department will grant the needed VAT Registration Certificate, together with a unique TIN.

Documents Required for VAT Registration

The documents and fees for vat registration with any specific State Commercial Tax Office vary depending upon the type of company, such as the proprietorships, LLPs, private limited companies, public limited companies, etc. The following are the basic and common requirements for a vat registration in any State of India:

• Well-completed VAT Application (Form-1).
• Applicable Prescribed Fees, mentioned below.
• Copy of the Central Sales Tax Registration Certificate (Form-A)
• Professional Tax Registration Certificate (Form-2)
• Copy of the Company Incorporation Certificate
• Details of all Business Activities of the Applicant Entity
• Address Proof and ID Proof of the Business Owner, or the Directors/Partners of the Company
• Four PP Size Photographs of the Proprietor/Director/Partner
• Copy of the rental Agreement of the Place of Business
• PAN Card and Bank Account Number of the Business Owner/Director or Partner of the Company
• Surety to the Extent of INR-1, 00,000/-, ranging from INR-25,000/-, which can be refunded or adjusted against the tax liabilities of the entity.
• Partnership Deed, in case of a Partnership Firm
• MOA and AOA, if the applicant company is a Limited Company, private or Public.

Fees for VAT Registration

• VAT Registration Fee – INR-500/-
• Profession Tax, INR-1000/-, for Proprietorship Firm; INR-1000/- for each Partner of the Partnership Firm or LLP; and, INR-2500/- for a Limited Company (Private or Public)
• Requisite Fee for the Turnover ranging from INR-0 to INR-2Lakhs, is INR-2000/-. For Turnover ranging from INR-2Lakhs to 10Lakhs, the fee is INR-3000/-. And, for the Turnover varying from INR-10Lakhs to INR-25Lakhs, is INR-6000/-. For the Turnover above INR-25Lakhs, the fee is INR-10,000/-.

Time Taken in VAT Registration

In general, all the processes for the VAT Registration in any concerned State of India, take an average time spell of 4-5 days, after filing the vat registration application together with the necessary documents and the prescribed fees.