Value Added Tax or VAT is a mandatory requirement for all kinds of business. Proprietorships, partnerships, private limited companies, manufacturing firms and even traders of any kind of products need VAT registration. VAT is similar to Central Service Tax (CST) and Taxpayer Identification Number (TIN). They use the same 11 digit number.
What is VAT?
VAT is an indirect tax levied on goods and services when they are sold to the ultimate customer. VAT is paid by the producers to the government. The producers then collect the tax amount from the consumer, by adding it to the price.
A registered business may also apply for the Input Tax Credit (ITC) and apply it on future sales. This will relieve the company of paying VAT themselves. With ITC registration, the VAT amount is added to the retail invoice and the customer makes the payment.
When is VAT Registration Compulsory?
Businesses with an annual turnover of more than Rs.5 lakhs (in some states it is Rs.10 lakhs), must acquire a registered VAT id. The VAT rates vary from state to state, business categories and the type of goods delivered. The amount of VAT charged is controlled by the state governments. This is why it varies from place to place.
The tax is based on value addition to manufactured goods. VAT id owners having an annual turnover of Rs. 50 lakhs are entitle to the Composition Scheme. Under this scheme the business must pay only a small percentage of tax on its gross turnover. However, it requires the said business to compromise its ITC agreement and forgo its benefit.
Acquiring a VAT id
To obtain a VAT id you need to go through the process of VAT id registration. The procedure involves 6 basic steps.
Step – 1 Locate Central Tax Office
Identify the Central Tax Office within the city your business is based. The tax office should house the VAT registration department as well.
Step – 2 Obtain Registration Form
Request for a VAT id registration form from the VAT office.
Step – 3 Attach Valid Documents
Fill out the application form with the correct details and attach the following documents to it:
– Central Sales Tax registration certificate (Form A)
– Professional Tax registration certificate
– Proof of address and ID of the proprietor, partner or director
– Four passport size photographs of the proprietor, partner or director
– Bank account number and PAN card number of the proprietor, partner or director
– Documents stating the details of your business activities
– In case of a partnership, a copy of the Partnership deed
– Incase of a private limited company, a copy of the memorandum of association and articles of association
– A copy of the rental agreement of the business
Step – 4 Verification
At this step, the local VAT authorities will inspect your business premises at a time scheduled by them.
Step – 5 Registration fees
Upon completion of the inspection, you are required to pay registration fees. The fee structure:
Step – 6 Collect Registration Certificate
The last step after verification and fee payment requires you to collect the Taxpayer Identification Number (TIN) provided immediately. The VAT registration certificate will be issued either the next day or within a week via post.
Why is VAT Registration Important?
VAT is a primary tax that adds to the nation’s revenue and economy. As a result it is a mandatory tax for all business establishments. The registration process is very easy. The fees are fixed and the verification process is simple.
Sellers exporting goods out of India do not need to pay VAT. However, it is still advisable for exporters to acquire VAT registration.