Value Added Tax (VAT) : Applicability and Procedures


VAT in India

The Value Added Tax (VAT) is a type of indirect tax and is one of major source of revenue to the state. The VAT system was introduced in India by replacing the General Sales Tax laws of each state. Presently in India, out of 35 States and Union Territories, 33 are following this new system of Sales Taxation. The States/Union territories which are yet to implement the VAT system are Andaman and Nicobar Islands and Lakshadweep.

The VAT system of taxation was adopted by Indian States and Union Territories in the Year 2005 by replacing the General Sales Tax Laws with New Value Added Tax Acts and the supporting Value Added Tax Rules for proper administration and collection of Tax. Each state or union territory has its own methods to assess the tax liability and collection methods from the dealers who fall under the purview of VAT.

The Administration of VAT system was undertaken by the Commercial Taxes Department of each state along with the Excise and other indirect taxes. For easy and quick assessment of taxation and prevention of tax evasion, the department has introduced the Registration System. This Registration system of VAT helps in identifying the assessees who come under purview of VAT and are liable to collect and pay VAT. For encouraging the Registration process some benefits or concessions are given to the dealers.

The Registered dealers are allowed to collect VAT payable by them from the immediate buyer. They can claim the VAT paid on purchases made only from a registered dealer. The unregistered dealer cannot charge VAT on the invoices, so the buying dealer cannot claim the VAT amount paid as Input Tax Credit. Also, the unregistered dealers are not eligible for availing concessions, for e.g., exemptions, which are given by the government.

The commercial tax department introduced a new method of levying tax called as the Composition Scheme especially after considering the small dealers whose turnover was low and were unable to maintain the records as per the requirements of VAT Act. These dealers have to pay a lump sum as VAT on the sale value of goods. The VAT paid will not be shown in the invoices. They can account for the total turnover and pay VAT on the same at the end of the return period.

For Assessing the VAT liability of dealers, each state has introduced the system of Filing Returns for different tax periods. The tax periods could be Monthly, Quarterly, Half-yearly and Annual. Each dealer has to file the Return by specifying the total turnover which is exempted as well as liable for VAT along with the purchases made and tax paid on it with the amount of VAT payable or Input tax credit carried forward within the stipulated period.




General Terminologies

Term Description
Input Tax This is the tax paid on purchases
Output Tax This is the tax charged on sales
Input Credit The excess amount of Input tax over output tax for the current period which is permitted to be set off against Output tax of subsequent periods is termed as Input Credit.
TIN Tax Identification Number (TIN) is the Registration Number given by the department to the dealer at the time of  Registration. This needs to be quoted at all required places where the registration details are to be provided.
Tax Invoice This is the Sales invoice format issued by one Registered Dealer to another. Based on this Invoice, the Input Tax Credit can be claimed by the purchasing dealer.
Retail Invoice The Sales invoice format used for invoicing the Exempted Sales and the Sales made to Unregistered dealers is termed as Retail Invoice.
Registered Dealer This term is used to identify a dealer who is registered either under Voluntary Registration or Compulsory Registration under the VAT Act. Such dealer can issue tax invoice and also claim the tax paid on purchases made from other registered dealers as Input tax credit.
Unregistered Dealer Dealers who are not registered under the VAT Act are called as Unregistered Dealers (URD). Such dealers cannot issue tax invoice. They can neither Charge Tax nor Claim Input Tax Credit.
Purchase Tax The Tax paid on goods purchased from unregistered dealers is liable to Purchase Tax. The purchase tax is treated as Output VAT payable by the dealer as it is a liability. It has to be paid while making the payment towards VAT liability. Based on the Rules and Regulations, the Input Tax Credit can be claimed on the payment made towards Purchase Tax.

VAT Computation

The above diagram depicts computation of (10%) VAT at each stage of business. Hence, it is not the manufacturers and retailers but only the consumer who has paid 10% VAT to the government. The profits for manufacturers and retailers thus remain unaffected.

Return Dates:


MVAT Due Date of Vat Payment for Monthly Return

Every dealer in Maharashtra who is liable to file the Monthly Return – The due of filing Return & Payment of MVAT is as follows:

Month Due Date
April 21st May
May 21st June
June 21st July
July 21st August
August 21st September
September 21st October
October 21st November
November 21st December
December 21st January
January 21st February
February 21st March
March 21st April

Recommended Read – 

MVAT Due Date of Vat Payment for Quarterly Return

Every dealer in Maharashtra who is liable to file the Quarterly Return – The due of filing Return & Payment of MVAT is as follows:

Quarter Due Date
Quarter 1 ( April to June) 21st July
Quarter 2 ( July to September) 21st October
Quarter 3 (October to December) 21st January
Quarter 4 (January to March) 21st April

Maharashtra VAT Audit Report Due Date

S. No Month  Due Date
1 Audit Report u/s 61 15st January

Interest And Penalties:

The Government of Maharashtra has issued Notification No.VAT.1515/CR-81/Taxation-1 dated 05-11-2015 revising the late payment interest rates slabwise viz. for delay of first month @ 1.25% p.m., for next two months @ 1.50% p.m. and thereafter @2% p.m w.e.f. 1st December 2015.


Leave a Reply

Your email address will not be published. Required fields are marked *