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Simplified processes and features of VAT E Filing

Updated: Nov 30, 2023

Value-Added Tax (VAT) is a commonly implemented indirect tax that is imposed on goods and services. Throughout the supply chain, VAT gets paid by producers to the government at every stage.


VAT is applicable within specific state boundaries, necessitating that both the buyer and the seller are situated in the same state.


The essence of VAT lies in the taxation of the gross margin at each step of the goods' sales process. This ensures that taxes are levied without compounding on existing tax obligations.


Operating through multiple stages, this tax system facilitates the collection of taxes paid on purchases at each point of sale, thereby eliminating the cumulative tax burden.

VAT laws differ among states and union territories, encompassing variations in exemption thresholds and the list of goods that are exempted from taxation.


In terms of compliance, taxpayers are obliged to submit monthly reports to the state VAT department, detailing their sales, purchases, and export information. Tax officials review the submitted data, and periodic VAT audits are conducted to ensure adherence to regulations.


Let's examine the characteristics of VAT e filing in India.

1) To comply with the State VAT Act and regulations, businesses must fulfil their obligations by filing returns and paying taxes within the prescribed dates. VAT e filing streamlines this process, allowing businesses to electronically submit their returns.


2) The VAT rate varies across states and products, and VAT e filing takes these variations into account.


3) Registered dealers can claim Input Tax Credit (ITC) on the purchase of goods and services used in their business operations.


4) VAT exempts certain goods and services from taxation. VAT e filing incorporates these exemptions, ensuring businesses accurately report their VAT liabilities.


5) Businesses utilizing VAT can claim refunds for excess VAT payments or goods exported out of the state.


6) Businesses meeting the taxable turnover threshold of over Rs. 20 lakhs (Rs. 10 lakhs for Jammu & Kashmir, Uttarakhand, and Himachal Pradesh) are required to register for VAT.


The process of VAT e-filing in India can be conveniently completed online. Let us unfold the steps involved:

  1. Begin by visiting the official website of the Goods and Services Tax Network (GSTN) portal, accessible at https://www.gst.gov.in/.

  2. Create an account on the GSTN portal by providing your PAN, email address, and mobile number during the registration process.

  3. Upon registration, a Temporary Reference Number (TRN) will be generated, which you need to keep for further proceedings.

  4. Log in to the GSTN portal using the TRN you received.

  5. Fill out the online application form and upload the required documents through the portal.

  6. Once you have successfully submitted the form, an application reference number will be generated for your reference.

  7. You will then be prompted to verify your application. This verification process involves using an Electronic Verification Code (EVC), which will be sent to your registered email address or mobile number.

  8. After completing the verification step, your VAT registration will undergo processing, and subsequently, a Certificate of Registration will be issued to you.

Let's explore the VAT rate chart, encompassing different categories of goods and their corresponding tax rates.


At the 0% VAT rate, we find essential commodities that are crucial for everyday life. These include staples, such as grains, milk, bread, fresh fruits and vegetables, salt, jaggery, etcetera.


Moving up the tax scale, we encounter the 5% VAT rate. This rate applies to products like coal, kerosene, aviation turbine fuel, and other items that fall within this range. These goods play a significant role in various industries and sectors, and the 5% VAT rate ensures a moderate level of taxation.


Next, we reach the 12% VAT rate category. This rate applies to a diverse range of items, including processed food items, Ayurvedic medicines, footwear, apparel, and other related products.


Advancing further, we encounter the 18% VAT rate, which encompasses a broad spectrum of household items. This category includes furniture, electronic items, mobile phones, and more.


Lastly, at the highest VAT rate of 28%, we find items that are considered luxury goods or fall within the premium segment. This category includes vehicles, luxury items, aerated drinks, and other similar products.


By categorizing goods into different VAT rates, the government aims to strike a balance between revenue generation and ensuring affordability for essential items.


When it comes to Value Added Tax (VAT), filing the return accurately and promptly is crucial. The VAT return encompasses vital information such as sales and purchases made during the specified period, the total amount of tax collected, and any adjustments or refunds applicable.


To fulfil VAT obligations, it is imperative to report this information on the designated form. Alongside the return, any taxes owed must be paid promptly. This ensures a comprehensive submission that covers both the necessary financial details and the corresponding tax liabilities.


Additionally, supporting documentation plays a vital role in the VAT return process. Invoices, along with other relevant documents, serve as evidence of transactions and provide essential backing for the reported figures. Proof of payment should also be included to validate the accuracy of the return.


To avoid penalties and interest charges, it is of utmost importance to file the VAT return within the stipulated period. Adhering to the prescribed deadline ensures compliance with regulatory requirements and facilitates a smooth and penalty-free VAT filing process.


The calculation of Value Added Tax (VAT) typically revolves around determining the discrepancy between the cost of goods or services sold and the cost of goods and services purchased. This disparity, known as the taxable value, plays a crucial role in fostering an equitable and open system of taxation.


VAT implementation is subject to certain guidelines that businesses need to follow. Not all businesses are required to implement VAT, but in India, those with a turnover exceeding ₹ 5 lakhs are eligible. VAT considers the remaining amount owed on a product's price after deducting previously paid taxes on goods and services.


Tax collection methods can be categorized into four categories:

  • Account-based: Tax is calculated on the value added to the product, rather than sales receipts. Not commonly used in all countries.

  • Invoice-based: VAT is measured using sales receipts, providing details of the VAT collected to buyers. Widely used worldwide.

  • Accrual-based: Taxes are collected based on the timing of revenue and expenses, ensuring they are recorded in the same accounting period.

  • Cash-based: A simplified method focusing on cash transactions rather than bills, recording the date of funds received.


For successful VAT e filing returns, certain prerequisites must get met. Consider the following essentials:


1) The 11-digit Tax Identification Number that gets provided by the state tax department, serves as your unique identifier. It enables you to track payments, e-payments, and previously filed returns, ensuring smooth record-keeping.


2) Upon registration, you would have received a User ID and password from the Tax Directorate office. If this is your first VAT payment, it is necessary to change your password before proceeding with VAT e filing.


3) Each state department offers dedicated software for VAT return e filing. After logging in, you can find a download option for this software. It facilitates data processing into XML format, which can get uploaded to the online portal of the Directorate of Commercial Taxes in your respective state.


4) VAT Receipts: It is essential to have comprehensive details and challan numbers of all VAT receipts for the previous month. These receipts should include records of payments or e-payments made, ensuring accurate reporting during the e filing process.


The continued relevance of VAT stems from the fact that not all goods have been encompassed by the comprehensive framework of GST thus far. Under the GST system, a central council assumes the responsibility of assessing and collecting GST revenues, subsequently allocating the appropriate amounts to individual states at regular intervals. However, there are three notable exceptions to GST: alcohol for human consumption, petroleum and petroleum products, and electricity. These particular items contribute significantly to state revenues, and allowing states to directly levy taxes on them ensures a steady stream of income between GST disbursements. As these items cannot get classified under the GST regime, they remain subject to VAT at the state level. Consequently, certain businesses continue to fulfil their obligations by filing VAT returns, ensuring compliance with existing taxation norms.


FAQs:


Q1) How does the application of consumption tax differ from sales tax in terms of its implementation within the supply chain?

VAT gets imposed on the consumption of goods and services, and it is levied at every stage of the supply chain during their sale. On the other hand, sales tax is a type of transaction-based tax that is imposed on goods and services at the final stage of the supply chain.


Q2) Could you elucidate the functioning mechanism of VAT?

VAT operates as a multi-stage tax system where businesses collect VAT on the sale of goods and services, while also having the opportunity to recover the VAT they previously paid on their purchases. This tax is initially collected by businesses and subsequently remitted to the government.


Q3) Does VAT have a higher compliance rate compared to sales tax?

Indeed, VAT demonstrates a superior compliance rate in comparison to sales tax. This can be attributed to the fact that VAT is applied at each stage of the production process, leaving fewer opportunities for loopholes to be exploited. On the other hand, sales tax is relatively easier to manipulate, making VAT a more robust and reliable system in terms of compliance.


Q4) Befitting Question: How does VAT in India contribute to equal taxation, transparency, and compliance in the sale of goods and services?

VAT in India has numerous fundamental features. It ensures equal taxation on similar goods and services, regardless of the brand. VAT is applied at every stage of production, simplifying the tax process and promoting transparency. By reducing opportunities for tax evasion, VAT encourages compliance. Additionally, VAT fosters transparency in the sale of goods and services, even at the grassroots level.


Q5) How does the self-assessment system under VAT streamline the assessment process and allow the government to prioritize tax collection?

VAT implementation involves self-assessment by dealers, reducing the resources needed for assessment and enabling the government to prioritize tax collection over administrative concerns.



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