Value Added Tax (VAT) registration is required for businesses trading or manufacturing goods in India. VAT registration replaced Sales Tax in India and is synonymous with CST registration and TIN registration. VAT is an indirect tax which is collected from somebody other than the person who in fact bears the cost of the tax. Businesses are entitled to recover VAT on goods & services that they buy to make additional supplies and services sold to end-users directly or indirectly, but personal end consumers of goods and services cannot claim back VAT on purchases. Thus, the total tax imposed at each stage in the economic chain of supply is a constant fraction of the value added by a business to its goods and businesses has to borne the cost of collecting the tax rather by the state. Implementation of VAT has resulted in discouraging tax swindle and tax prevarication.
VAT is collected and governed by the State Government, so each State Government in India has distinct rules applicable for their State based on the type of goods manufactured or sold. Hence, it is important for any business involved in the manufacturing or trading of goods to check the VAT rates applicable for the goods they sell in their state and comply with the relevant regulations.
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