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CHAPTER 1

INCOME TAX
INTRODUCTION
An income tax is a tax imposed on individuals or entities (taxpayers) that varies with
the income or profits (taxable income) of the taxpayer. Details vary widely by jurisdiction.
Many jurisdictions refer to income tax on business entities as companies tax or corporate tax.
Partnerships generally are not taxed rather, the partners are taxed on their share of partnership
items. Tax may be imposed by both a country and subdivisions. Most jurisdictions exempt
locally organized charitable organizations from tax.
Income tax generally is computed as the product of a tax rate times taxable income.
The tax rate may increase as taxable income increases (referred to as graduated rates).
Taxation rates may vary by type or characteristics of the taxpayer. Capital gains may be taxed
at different rates than other income. Credits of various sorts may be allowed that reduce tax.
Some jurisdictions impose the higher of an income tax or a tax on an alternative base or
measure of income.
Taxable income of taxpayers resident in the jurisdiction is generally total income less
income producing expenses and other deductions. Generally, only net gain from sale of
property, including goods held for sale, is included in income. Income of a corporation's
shareholders usually includes distributions of profits from the corporation. Deductions
typically include all income producing or business expenses including an allowance for
recovery of costs of business assets. Many jurisdictions allow notional deductions for
individuals, and may allow deduction of some personal expenses. Most jurisdictions either do
not tax income earned outside the jurisdiction or allow a credit for taxes paid to other
jurisdictions on such income. Nonresidents are taxed only on certain types of income from
sources within the jurisdictions, with few exceptions.
Most jurisdictions require self-assessment of the tax and require payers of some types
of income to withhold tax from those payments. Advance payments of tax by taxpayers may
be required. Taxpayers not timely paying tax owed are generally subject to significant
penalties, which may include jail for individuals or revocation of an entity's legal existence.

DEFINITION OF INCOME TAX:Most systems define income subject to tax broadly for residents, but tax nonresidents
only on specific types of income. What is included in income for individuals may differ from
what is included for entities. The timing of recognizing income may differ by type of
taxpayer or type of income.
Income generally includes most types of receipts that enrich the taxpayer, including
compensation for services, gain from sale of goods or other property, interest, dividends,
rents, royalties, annuities, pensions, and all manner of other items. Many systems exclude
from income part or all of superannuation or other national retirement plan payments. Most
tax systems exclude from income health care benefits provided by employers or under
national insurance systems.

Type of Taxes in India:-

Type of Taxes in India:-

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ect Taxes:Direct Tax in India :Every so often, Indias working population jointly celebrates the liberty, freedom and
power that comes with being rewarded for a job well done. This gut-twisting warmth and
excitement of achievement comes at different times through different channels for different
people, but two things unite all types of earners in India the feeling of achievement and
success, and the slight pang of sadness that comes with noticing the amount isnt really what
you signed on for or expected.
So why isnt the amount as much as it ought to be? Whats that deduction for?
Its because of Income Tax, a type of direct tax which is levied by the Government of India
on those whose income exceeds certain slab amounts.

Direct Tax:Broadly, there are two types of taxes that the Indian government levies on its citizens
direct tax and indirect tax.

Meaning: Direct taxes are those which are paid directly to the government by the
taxpayer. These taxes are not paid deducted and paid on behalf of the taxpayer. Its imposed
on the people and organizations directly by the government. This tax liability has to be paid
by the taxpayer in question and cannot be transferred to any other entity for payment.
Examples of Direct Taxes In India:Key examples of direct taxes are

Income tax
Wealth tax
Corporation tax

The Central Board of Direct Taxes in India:-

Direct taxation in India is overseen by the Central Board of Direct Taxes or the
CBDT, which was formed as a result of the Central Board of Revenue Act, 1924. The CBDT
is a part of the Department of Revenue in the Ministry of Finance and is responsible for the
administration of the direct tax laws. It also provides inputs and suggestions for policy and
planning of the direct taxes in India.
The CBDT is the hub and nexus of all direct taxation policy and enforcement. It is
headed by a CBDT Chairman, and comprises of six members who are also Special Secretary
to the Government of India.

Direct Tax Code:What is Direct Tax Code:-

In a move to establish a more efficient, effective and equitable direct tax system, the
Direct Taxes Code or DTC has been drafted to replace the existing Indian Income Tax Act of
1961. It aims to consolidate and amend all laws relating to the direct taxes in order to
facilitate voluntary compliance and increase the tax-GDP ratio. With its 319 Sections and 22
Schedules, the DTC aims to replace the old Income Tax Act and provide a more stable,
efficient and overall better code for taxation incorporating the best taxation principles and
proven international practices.

The Direct Tax Code Explained With Examples:The DTC is explained in this section by delving into its key features. Key examples of
DTC are income tax, corporate tax, wealth tax and capital gains tax. These are explained in
detail below.

Single code for direct taxes: By bringing all direct taxes under a single code with
unified compliance features, a single unified taxpayer reporting system can be
facilitated.

Eliminates the problem of constant litigation: Special care has been taken to avoid
contradictory and ambiguity in the code, to avoid misinterpretation and misuse.
Flexibility: The statute has been structured in a way that can accommodate the
changes and requirement of a growing economy without having to constantly resort to
amendments.
Eliminates regulatory functions: Regulatory functions are to be carried out by other
regulatory authorities, keeping it simple.
Stability: In the current system, the tax rates are formed in the Finance Act of the
relevant year. All rates of taxes under the DTC, however, are proposed to be
prescribed in the First to Fourth schedule of the DTC itself, and any amendments to
the same will be brought before Parliament as an Amendment Bill.
Political contributions of up to 5% of the gross total income will be eligible for
deduction.
Fringe benefits tax will be charged to the employee rather than the employer.
Annual investments in approved funds and insurance proposed at Rs.1,50,000,
instead of Rs.1,20,000.

Types of Direct Taxes One Pays :Direct taxes come in many shapes and forms. All of the below mentioned tax
headings have two things in common they are imposed directly and apply to every Indian
citizen.
These types of taxes are directly imposed & paid to Government of India. There has
been a steady rise in the net Direct Tax collections in India over the years, which is healthy
signal. Direct taxes, which are imposed by the Government of India, are:

(1) Income Tax:Income tax, this tax is mostly known to everyone. Every individual whose total
income exceeds taxable limit has to pay income tax based on prevailing rates applicable time
to time.
By doing investment in certain scheme you can save Income Tax.
Also Read :- 14 Tax Saving Options 2014
For FY 2016-17 Income tax rates are:-

(2) Capital Gains Tax:Capital Gain tax as name suggests it is tax on gain in capital. If you sale property,
shares, bonds & precious material etc. and earn profit on it within predefined time frame you
are supposed to pay capital gain tax. The capital gain is the difference between the money
received from selling the asset and the price paid for it.
Capital gain tax is categorized into short-term gains and long-term gains. The Longterm Capital Gains Tax is charged if the capital assets are kept for more than certain period 1
year in case of share and 3 years in case of property. Short-term Capital Gains Tax is
applicable if these assets are held for less than the above-mentioned period.
Example :If you purchase share at say 1000 Rs/- (per share) and after two months this price
increased to 1200 Rs/-(per share) you decide to sale this stock and earn profit of 200 Rs/- per
share. If you do so you have to pay Short term CGT (capital gain tax) @ 10% +Education
cess on profit as it is short term capital gain. If you hold same share for 1 year or above it is
considered as long term capital gain and you need not to pay capital gain tax it is considered
as tax free.
Similarly if you purchase property after two year if you find that property price in
which you invested has increased and you decide to sale it you need to pay short term capital
gain tax.
For property it is considered as long term capital gain if you hold property for 3 years
or above.

(3) Securities Transaction Tax:-

A lot of people do not declare their profit and avoid paying capital gain tax, as
government can only tax those profits, which have been declared by people. To fight with this
situation Government has introduced STT (Securities Transaction Tax ) which is applicable
on every transaction done at stock exchange. That means if you buy or sell equity shares,
derivative instruments, equity oriented Mutual Funds this tax is applicable.
This tax is added to the price of security during the transaction itself, hence you
cannot avoid (save) it. As this tax amount is very low people do not notice it much.
Current STT Rates are:SECURITIES TRASACTION TAX
Market Type
Futures & Options
Capital Market (Delivery)
Capital Market (Intra-Day)

Current Rate
0.017%
0.125%
0.025%

(4) Perquisite Tax:-

Earlier to Perquisite Tax we had tax called FBT (Fringe Benefit Tax) which was
abolished in 2009, this tax is on benefit given by employer to employee. E.g If your company
provides you non-monetary benefits like car with driver, club membership, ESOP etc. All this
benefit is taxable under perquisite Tax.
In case of ESOP The employee will have to pay tax on the difference between the Fair
Market Value (FMV) of the shares on the date of exercise and the price paid by him/her.

(5) Corporate Tax:Corporate Taxes are annual taxes payable on the income of a corporate operating in
India. For the purpose of taxation companies in India are broadly classified into domestic
companies and foreign companies.

In addition to above other taxes are also applicable on corporates.

Indirect Taxes:(1) Sales Tax :Sales tax charged on the sales of movable goods. Sale tax on Inter State sale is
charged by Union Government, while sales tax on intra-State sale (sale within State) (now
termed as VAT) is charged by State Government.
Sales can be broadly classified in three categories.
(a) Inter-State Sale
(b) Sale during import/export
(c) Intra-State (i.e. within the State) sale.
State Government can impose sales tax only on sale within the State.
CST is payable on inter-State sales is @ 2%, if C form is obtained. Even if CST is
charged by Union Government, the revenue goes to State Government. State from which
movement of goods commences gets revenue. CST Act is administered by State Government.

(2) Service Tax:Most of the paid services you take you have to pay service tax on those services. This
tax is called service tax. Over the past few years, service tax been expanded to cover new
services.

Few of the major service which comes under vicinity of service tax are telephone,
tour operator, architect, interior decorator, advertising, beauty parlor, health center, banking
and financial service, event management, maintenance service, consultancy service
Current rate of interest on service tax is 14.5%. This tax is passed on to us by service
provider.

(3) Value Added Tax:The Sales Tax is the most important source of revenue of the state governments; every
state has their respective Sales Tax Act. The tax rates are also different for respective states.
Tax imposed by Central government on sale of goods is called as Sales tax same is
called as Value added tax by state government.VAT is additional to the price of goods and
passed on to us as buyer (end user). Around 220+ Items are covered with VAT.VAT rates vary
based on nature of item and state.
Government is planning to merge service tax and sales tax in form of Goods service
tax (GST).

(4) Custom duty & Octopi (On Goods):Custom Duty is a type of indirect tax charged on goods imported into India. One has
to pay this duty , on goods that are imported from a foreign country into India. This duty is
often payable at the port of entry (like the airport). This duty rate varies based on nature of
items.
Octroi is tax applicable on goods entering in to municipality or any other jurisdiction
for use, consumption or sale. In simple terms one can call it as Entry Tax.

(5) Excise Duty:An excise or excise duty is a type of tax charged on goods produced within the
country. This is opposite to custom duty which is charged on bringing goods from outside of
country. Another name of this tax is CENVAT (Central Value Added Tax).

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If you are producer / manufacturer of goods or you hire labor to manufacture goods
you are liable to pay excise duty.

(6) Anti Dumping Duty:Dumping is said to occur when the goods are exported by a country to another
country at a price lower than its normal value. This is an unfair trade practice which can have
a distortive effect on international trade. In order to rectify this situation Central Govt.
imposes an anti dumping duty not exceeding the margin of dumping in relation to such
goods.

Other Taxes:-

(1) Professional Tax

:-

If you are earning professional you need to pay professional tax. Professional tax is
imposed by respective Municipal Corporations. Most of the States in India charge this tax.
This tax is paid by every employee working in Private organizations. The tax is
deducted by the Employer every month and remitted to the Municipal Corporation and it is
mandatory like income tax.
The rate on which this tax is applicable is not same in all states.

(2) Dividend distribution Tax:Dividend distribution tax is the tax imposed by the Indian Government on companies
according to the dividend paid to a companys investors. Dividend amount to investor is tax
free. At present dividend distribution tax is 15%.

(3) Municipal Tax:Municipal Corporation in every city imposed tax in terms of property tax. Owner of
every property has to pay this tax. This tax rate varies in every city.

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(4) Entertainment Tax:Tax is also applicable on Entertainment; this tax is imposed by state government on
every financial transaction that is related to entertainment such as movie tickets, major
commercial shows exhibition, broadcasting service, DTH service and cable service.

(5) Stamp Duty, Registration Fees, Transfer Tax:If you decide to purchase property than in addition to cost paid to seller. You must
consider additional cost to transfer that property on your name.
That cost include registration fees, stamp duty and transfer tax. This is required for
preparing legal document of property.
In simple sense this tax is imposed on the handing over of the title of property
ownership by one person to another. It incorporates a legal transaction fee & stamp duty. This
amount varies from property to property based on cost.

(6) Education Cess, Surcharge:Education cess is deducted and used for Education of poor people in INDIA. All taxes
in India are subject to an education cess, which is 3% of the total tax payable. The education
cess is mainly applicable on Income tax, excise duty and service tax.
Surcharge is an extra tax or fees that added to your existing tax calculation. This tax is
applied on tax amount.

(7) Gift Tax:If you receive gift from someone it is clubbed with your income and you need to pay
tax on it. This tax is called as gift tax.
This tax is applicable if gift amount or value is more than 50000 Rs/- in a year.

(8) Wealth Tax:12

Wealth tax is a direct tax, which is charged on the net wealth of the assessee. Wealth
tax is chargeable in respect of Net wealth corresponding to Valuation date.Net wealth means
all assets less loans taken to acquire those assets. Wealth tax is 1% on net wealth exceeding
30 Lakhs (Rs 3,000,000). So if you have more money, assets you are liable to pay tax.
Note:- Wealth tax is abolished by government in budget 2015.Now onwards
surcharge of 12% is applicable on individual earning 1 crore and above.

(9) Toll Tax:At some of places you need to pay tax in order to use infrastructure (road, bridge etc.)
build from your money given to government as Tax. This tax is called as toll tax. This tax
amount is very small amount but, to be paid for maintenance work and good up keeping.

(10) Swachh Bharat Cess:Swacch Bharat Cess is recently being imposed by the government of India. This tax
is applicable on all taxable services from 15thNovemeber, 2015. The effective rate of Swachh
Bharat Cess is 0.5%. After this tax we need to pay 14.5% service tax.

(11) Krishikalyan Cess:In budget 2016 finance minister has introduced new tax namely KrishiKalyan Cess.
This cess is introduced in order to extend welfare to the farmers. The effective rate of
KrishiKalyan Cess is 0.5%. This tax will be imposed on all taxable services. KrishiKalyan
Cess would come in force with effect from June, 1, 2016. Once this cess is applied we need to
pay service tax @ 15%.

(12) Dividend Tax:In budget 2016 finance minister has introduced a new tax on the dividend amount. It
is proposed that 10% additional tax will be imposed on dividend income above 10 Lac from
1st April 2016 onwards.

(13) Infrastructure Cess:New Infrastructure cess on car and utility vehicle imposed recently
in budget 2016. 1% infrastructure cess is applicable on petrol/LPG/CNG13

driven motor vehicles of length not exceeding 4 meters and engine


capacity not exceeding 1200cc. 2.5% cess on diesel motor vehicles of
length not exceeding 4 meters and engine capacity not exceeding 1500cc
and 4% cess is applicable on big sedans and SUVs.

(14) Entry Tax:This entry tax is imposed by Gujarat, Madhya Pradesh, Assam, Delhi and
Uttarakhand state government recently. The tax rate is variable 5.5-10%
depending upon the state. All items entering in the state boundaries
ordered via E-commerce are under this tax boundary.
So in total you pay 25 different taxes in direct or indirect way. At the end
in order to make you laugh i will tell you one small joke on tax.

CHAPTER 2
Value-added tax
INTRODUCTION:VAT is a multi-stage tax levied at each stage of the value addition chain, with a
provision to allow input tax credit (ITC) on tax paid at an earlier stage, which can be
appropriated against the VAT liability on subsequent sale.
VAT is intended to tax every stage of sale where some value is added to raw materials,
but taxpayers will receive credit for tax already paid on procurement stages. Thus, VAT will
be without the problem of double taxation as prevalent in the earlier Sales tax laws.

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Presently VAT is followed in over 160 countries. The proposed Indian model of VAT will be
different from VAT, as it exists in most parts of the world. In India, VAT has replaced the
earier State sales tax system.
One of the many reasons underlying the shift to VAT is to do away with the distortions
in our earier tax structure that carve up the country into a large number of small markets
rather than one big common market. In the earlier sales tax structure tax is not levied on all
the stages of value addition or sales and distribution channel which means the margins of
distributors/ dealers/ retailers at large not subject to sales tax earlier.
Thus, the sales tax pricing structure needs to factor only the single-point levy
component of sales tax and the margins of manufacturers and dealers/ retailers etc, are
worked out accordingly.
Internal trade and impeded development of a common market.
Prices by an amount higher than what accrues to the exchequer by way of revenues
from it.
Also, there was the problem of multiplicity of rates. All the states, provided for
plethora of rates. These range from one to 25 percent. This multiplicity of rates increases the
cost of compliance while not really benefiting revenue.
Heterogeneity prevailed in the structure of tax as well. Apart from general sales tax,
most states used to levy an additional sales tax or a surcharge. In addition, the states levied
luxury tax as also an entry tax on the sale of imported goods.
All these practices of heterogeneity in structure as well as rates cause diversion of
trade as well as shifting of manufacturing activity from one State to another. Further,
widespread taxation of inputs relates to vertical integration of firms, i.e., the earlier system of
taxes militated against ancillary industries and encourages them to produce more and more of
the inputs needed rather than purchase them from ancillary industries.
The earlier system of commodity taxes is non-neutral. It interferes with the producers'
choice of inputs as well as with the consumers' choice of consumption, thereby leading to
severe economic distortions.

VAT address these issues:Under the VAT regime, due to multi-point levy on the price including value additions
at each and every resale, the margins of either the re-seller or the manufacturer would be
reduced unless the ultimate price is increased.
VAT would not cause cascading, nor would it cause vertical integration of firms. Also,
it provides total transparency of the incidence of tax. This is because, VAT is a multi-stage
sales tax levied as a proportion of the value added. It is collected at each stage of the
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production and distribution process, and in principle, its burden falls on the final consumer.
Another feature of VAT regime is discontinuation of the sales tax based incentives to new
industrial units. Until now, all the states were granting such incentives to new industries in
the form of exemption from tax on the purchase of inputs as well as on the sale of finished
goods, sales tax loans and/or tax deferral. However for the new industrial units to whom the
incentive by way of exemption or tax deferrals are already sanctioned under the Sales Tax Act
are continued in the form of refund.
WHO GAINS:State and Central governments gain in terms of revenue. VAT has in-built incentives
for tax compliance only by collecting taxes and remitting them to the government can a seller
claim the offset that is due to him on his purchases. Everyone has an incentive to buy only
from registered dealers purchases from others will not provide the benefit of credit for the
taxes paid at the time of purchase. This transparency and in-built incentive for compliance
would increase revenues. Industry and trade gain from transparency and reduced need to
interact with the tax personnel. For those who have been complying with taxes, VAT would
be a boon that reduces the cost of the product to the consumer and boosts competitiveness.
VAT would be major blow for tax evaders, both manufacturers who evade excise duty
payments and traders who evade sales-tax.
TAX BURDEN:The overall tax burden will be rationalized as itll be shared by all dealers, and prices,
in general, will fall. Moreover, VAT will replace the existing system of inspection by a system
of built-in self-assessment by traders and manufacturers. The tax structure will become
simple and more transparent and tax compliance will improve significantly. It will also be
simpler and offer easy computation and easy compliance. VAT will prevent cascading effect
through input rebate and help avoid distortions in trade and economy by ensuring uniform tax
rates.
WHO PAYS:All dealers registered under VAT and all dealers with an annual turnover of more than
Rs 5 lakh will have to register. Dealers with turnovers less than Rs 5 lakh may register
voluntarily.
HOW TO PAY:16

VAT will be paid along with monthly returns. Credit will be given within the same
month for entire VAT paid within the state on purchase of inputs and goods. Credit thus
accumulated over any month will be utilized to deduct from the tax collected by the dealer
during that month. If the tax credit exceeds the tax collected during a month on sale within
the state, the excess credit will be carried forward to the next month.

GOODS WILL BE TAXABLE UNDER VAT


All goods except those specifically exempt. In fact, over 550 items will be covered
under the new tax regime, of which 46 natural and unprocessed local products would be
exempt from VAT. About 270 items, including drugs and medicines, all agricultural and
industrial inputs, capital goods and declared goods would attract 4% VAT. But, following
opposition from some states, it was decided that states would have option to either levy 4% or
totally exempt food grains from VAT but it would be reviewed after one year. Three items
sugar, textile, tobacco under additional excise duties will not be under VAT regime for one
year but existing arrangement would continue.
OTHER CONSIDERATIONS:It is imperative that policy makers in considering adoption of VAT should be
interested in the economy wide impact of this tax. Special emphasis is often placed on its
effect on equity, prices and economic growth. This is particularly important because of the
potential effects on consumption of certain commodities that have a direct or indirect effect
on labor productivity.
VAT EFFECT ON INFLATION :In considering the introduction of VAT, countries are often concerned that it would
cause an inflationary spiral. However there is no evidence to suggest that this is true. A
survey of OECD countries that introduced VAT indicated that VAT had little or no effect on
prices. In cases where there was an effect it was a one time effect that simply shifted the trend
line of the consumer price index (CPI). To guard against any unforeseen price effects the
authorities may consider a tighter monetary policy stance at the introduction of VAT.

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DISTRIBUTION EFFECTS OF VAT:Value added tax is widely criticized as being regressive with respect to income that is
its burden falls heavily on the poor than on the rich. This emanates from the fact that
consumption as a share of income falls as income rises. Hence a uniform VAT rate falls
heavily on the poor than the rich. This criticism is valid when VAT payments are expressed
as a proportion of current income.

However if, following the premise that welfare is

demonstrated by the level of consumption rather than income, consumption is used as the
denominator the impact of VAT would be proportional.

A proportional burden would also

be demonstrated if lifetime income rather than current income is used. A lifetime income
concept considers the fact that many income recipients are only temporarily at lower income
brackets as their earnings increase. In order to address the regressively of VAT the following
measures can be taken:

The VAT itself can be used to differentiate taxation of consumer items that are

consumed primarily by the poor such that they pay less or at zero rate or to tax luxury goods
at a higher than standard rate.

VAT exemptions may also be granted on goods and services that are consumed mostly

by the poor.

Equity concerns may also be addressed through other ways, outside the VAT system,

such as other tax and spending instruments of government. This could be in the form of
lower basic income tax rates on the poor or some pro-poor expenditures of government. The
use of multiple rates of VAT has however been widely discouraged for various reasons.
These include:

The fact that sometimes it is almost impossible to differentiate between higher

quality expensive products e.g. food, consumed by the rich and ordinary products
consumed by the poor. Thus any concessions extended may tend to benefit the rich much
more than the poor.

Increased costs of VAT administration as a differentiated rate structure brings

with it problems of delineating products and interpreting the rules on which rate to use.

significantly increased costs of tax compliance for small firms, which are usually

unable to keep separate records/accounts for sales of differently taxed items.

This results

in the use of presumptive methods of determining the tax liability, which leads to
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more difficulties in monitoring the compliance. The higher compliance cost resultant from
differentiation of VAT rates may also be regressive with respect to income since smaller firms
with lower income tend to bear proportionately more of the burden than do larger firms.
Exemptions refer to situations where output is not taxed but taxes paid on inputs are not
recoverable. The rationale behind exemptions is to reduce negative distributional effects of
tax through the effect on incomes. The effects of exemption may be as follows:

falling of revenues exemptions break the VAT chain. If exemptions are granted at

prior to the final sale, it results in a loss of revenue since value added at the final stage
escapes tax.

Un-recovered taxation of some intermediate goods may lead to producers substituting

away from such inputs thus distorting the input choices of the said producers.

Exemptions may create incentives to self supply i.e. tax avoidance by vertical

integration.

Exemptions tend to feed on each other giving rise to a phenomenon called exemption

creep. This arises from the fact that each exemption gives rise to pressures on further
exemption. For example creating an exemption to reduce the tax burden on a particular
commodity or goods may lead to increased pressure for exemption or zero rating of inputs
used for the production of such a commodity.
Based on the above, it is important that care is taken when introducing exemptions in
order to avoid distortions in the production process as well as to minimize revenue loss
resulting from such distortions.
Given the fact that the primary purpose of VAT is to raise government revenue in an
efficient manner and with as little distortions of economic activity as possible, distribution
effects are perhaps better addressed by other forms of tax and government expenditure
policies which can often be better targeted at these aims.
VAT EFFECT ON ECONOMIC GROWTH: Economic growth can be facilitated through investment by both government and the
private sector. Savings by both parties are required in order to finance investment in a noninflationary manner. Compared to other broadly based taxes such as income tax VAT is
neutral with respect to choices on whether to consume now or save for future
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consumption. Although VAT reduces the absolute return on saving it does not reduce the net
rate of return on saving. Income tax reduces the net rate of return as both the amount saved as
well as the return on that saving are subject to tax. In this regard VAT may be said to be a
superior tax in promoting economic growth than income tax. Since VAT does not influence
investment decisions on firms, by increasing their costs, its effects on investment can be said
to be neutral.
FEATURES OF VAT: 1. Rate of Tax VAT proposes to impose two types of rate of tax mainly:
a. 4% on declared goods or the goods commonly used.
b. 10-12% on goods called Revenue Neutral Rates (RNR). There would be no
fall in such remaining goods.
c. Two special rates will be imposed-- 1% on silver or gold and 20% on liquor.
Tax on petrol, diesel or aviation turbine fuel are proposed to be kept out from
the VAT system as they would be continued to be taxed, as presently
applicable by the CST Act.
Uniform Rates in the VAT system, certain commodities are exempted from tax. The
taxable commodities are listed in the respective schedule with the rates. VAT proposes
to keep these rates uniform in all the states so the goods sold or purchased across the
country would suffer the same tax rate. Discretion has been given to the states when it
comes to finalizing the RNR along with the restrictions. This rate must not be less
than 10%. This will ensure By doing this that there will be level playing fields to
avoid the trade diversion in connection with the different states, particularly in
neighboring states
2. No concession to new industries Tax Concessions to new industries is done away with
in the new VAT system. This was done as it creates discrepancy in investment
decision. Under the new VAT system, the tax would be fair and equitable to all.
3. Adjustment of the tax paid on the goods purchased from the tax payable on the goods
of sale All the tax, paid on the goods purchased within the state, would be adjusted
against the tax, payable on the sale, whether within the state or in the course of
interstate. In case of export, the tax, paid on purchase outside India, would be
refunded. In case of the branch transfer or consignment of sale outside the state, no
refund would be provided.
4. Collection of tax by seller/dealer at each stage. The seller/dealer would collect the tax
on the full price of the goods sold and shows separately in the sell invoice issued by
him
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5. VAT is not cascading or additive though the tax on the goods sold is collected at each
stage, it is not cascading or additive because the net effect would be as follows: - the
tax, previously paid on the sale of goods, would be fully adjusted. It will be like
levying tax on goods, sold in the last state or at retail stage.
THE BIGGEST ADVANTAGE: The biggest benefit of VAT is that it could unite India into a large common market. This
will translate to better business policy. Companies can start optimizing purely on logistics of
their operations, and not on based on tax-minimization. Lorries need not wait at check-points
for days; they can zoom down the highways to their destinations. Reduced transit times and
lower inventory levels will boost corporate earnings. Following are the some more advantage
of VAT: 1. Simplification :- Under the CST Act, there are 8 types of tax rates- 1%, 2%, 4%, 8%,
10%, 12.5%, 20% and 25%. However, under the present VAT system, there would
only be 2 types of taxes 4% on declared goods and 10-12% on RNR. This will
eliminate any disputes that relate to rates of tax and classification of goods as this is
the most usual cause of litigation. It also helps to determine the relevant stage of the
tax. This is necessary as the CST Act stipulates that the tax levies at the first stage or
the last stage differ. Consequently, the question of which stage of tax it falls under
becomes another reason for litigation. Under the VAT system, tax would be levied at
each stage of the goods of sale or purchase.
2. Adjustment of tax paid on purchased goods: - Under the present system, the tax
paid on the manufactured goods would be adjusted against the tax payable on the
manufactured goods. Such adjustment is conditional as such goods must either be
manufactured or sold. VAT is free from such conditions.
3. Further such adjustment: - of the purchased goods would depend on the amount of
tax that is payable. VAT would not have such restrictions. CST would not have the
provisions on refund or carry over upon such goods except in case of export goods or
goods, manufactured out of the country or sale to registered dealer. Similarly, on
interstate sale on tax-paid goods, no refund would be admissible.
4. Transparency: - The tax that is levied at the first stage on the goods or sale or
purchase is not transparent. This is because the amount of tax, which the goods have
suffered, is not known at the subsequent stage. In the VAT system, the amount of tax
would be known at each and every stage of goods of sale or purchase.

21

5. Fair and Equitable: - VAT introduces the uniform tax rates across the state so that
unfair advantages cannot be taken while levying the tax.
6. Procedure of simplification: - Procedures, relating to filing of returns, payment of
tax, furnishing declaration and assessment are simplified under the VAT system so as
to minimize any interface between the tax payer and the tax collector.
7. Minimize the Discretion: - the VAT system proposes to minimize the discretion with
the assessing officer so that every person is treated alike. For example, there would be
no discretion involved in the imposition of penalty, late filing of returns, non-filing of
returns, and late payment of tax or nonpayment of tax or in case of tax evasion. Such
system would be free from all these harassment
8. Computerization: - the VAT proposes computerization which would focus on the tax
evaders by generating Exception Report. In a large number of cases, no processing or
scrutiny of returns would be required as it would free the tax compliant dealers from
all the harassment which is so much a part of assessment. The management
information system, which would form a part of integral computerization, would
make the tax department more efficient and responsive.
CHAPTER 3
VALUE ADDED TAX IN MAHARASHTRA

Quick Flash Back: Sales tax was first introduced in India in the then Bombay Province as early as March
1938 where a tax was imposed on sale of tobacco within certain urban and suburban areas. In
the year 1946, a general sales tax was introduced levying sales tax at the last stage of sale of
goods.
The Bombay Sales Tax Act, 1959 introduced in 1959 underwent many changes
thereafter and in July 1981, first point tax was introduced wherein goods were classified into
three main schedules, broadly covering tax free goods, intermediate products and finished
goods. The BST Act was repealed and Maharashtra Value Added Tax Act, 2002 came into
force w. e. f. 1st April, 2005 to usher in the progressive value added tax system in place of the
old sales tax system.
VAT is a progressive and transparent system of taxation which eliminates the
cascading impact of multiple taxation through a multipoint taxation and set-off principle. It
promotes transparency, compliance and equity and therefore, is both dealer friendly and
consumer friendly.
22

VAT being a multi point tax, envisages an increase in the number of dealers and is
based on the concept of self-assessment and self-compliance. It is therefore, inevitable that
the Sales Tax Department transforms itself into a dealer friendly, focused and dynamic
department to cater to the ever increasing expectations of both the Government and the Trade
& Industry.
Sales Tax Department has taken up the challenge to transform their selves and be
available for assisting the dealers in complying with the provisions of the law. They are in the
process of installing a state-wide networked IT system to computerise entire tax
administration and hope to provide online service to the dealers in due course. They are also
realigning their organizational structure to meet the challenges of the new system and
stakeholders' expectations.

Background
Maharashtra is one of the 21 States which have introduced the Value Added Tax
(VAT) system of taxation from 1st April 2005. With the introduction of VAT, the Sales Tax
Department has moved to a globally recognized sales taxation system that has been adopted
by more than 130 countries.
The design of Maharashtra State VAT is generally guided by the best international
practices with regard to legal framework, as well as operating procedures. Another key factor
in preparation of the design of State level VAT is the national consensus on certain issues. The
consensus has been arrived at through the discussions in the Empowered Committee of State
Finance Ministers on implementation of State level VAT.
On 1st April 2005, VAT replaced the single point sales tax. Single point sales tax had a
number of disadvantages, primarily that of double taxation. VAT is a modern and progressive
taxation system that avoids double taxation. In addition to offering the possibility of a set-off
of tax paid on purchases, VAT has other advantages for both business and government.
It eliminates cascading impact of double taxation and promotes economic efficiency.
It is primarily a self-policing, self-assessment system with more trust put on dealers.
It provides the potential for a stronger manufacturing base and more competitive

export pricing.
It is invoice based, and as a result it offers a better financial system with less scope for

error.
It has an improved control, mechanism resulting in better compliance.
It widens the, tax base and promotes equity.
23

VAT in Maharashtra is levied under a legislation known as the Maharashtra Value Added
Tax Act (MVAT Act), supported by Maharashtra Value Added Tax Rules (MVAT Rules). VAT
is levied on sale of goods including intangible goods.

The meaning of goods for VAT purposes


Goods means every kind of moveable property including goods of incorporeal and
intangible nature but there are some exclusion, such as newspapers, actionable claims,
money, shares and securities and lottery tickets.
Businesses engaged in. the buying and selling of goods within the scope of the VAT law are
referred to as dealers.

The meaning of 'sale' for VAT purposes


A transaction of sale can be a:
normal sale of goods;
sale of goods under hire-purchase system;
deemed sale of goods used I supplied in the course of execution of works contract;
deemed sale of goods given on lease.
The rate of tax applicable to the goods sold under various classes of sales is uniform.
However, in respect of normal sales of goods and deemed sales of goods under works
contract and specified deemed sale of goods given on lease, the Act provides for an optional
method for discharging tax liability by way of composition. Being so, the tax liability has to
be determined with reference to the option exercised by the dealer for discharging tax
liability.

Rebating, returns & billing under VAT


IN CASE OF MANUFACTURER: (a) Input tax rebate is available only on the purchases made in the State of Karnataka and on
the basis of 'Tax invoice' issued by the dealers selling goods to the manufacturers. Taxes or
duties paid on other types of purchases namely: interstate purchases, interstate consignment
receipt and International imports are not eligible for input tax rebate.
(b) Output tax is to be charged and collected on the sales made in the State of Karnataka.
However, on the interstate sales taxes under CST Act could be collected separately or it could
be included in the sale price also. In both these cases of sales, input tax rebate is available
24

only on the purchases made in the State of Karnataka. On consignment transfer both in the
State of Karnataka and interstate there is no levy of VAT or CST as there is no transaction of
sale in either of them. (For interstate consignment of manufactured goods and the goods
purchased from Karnataka and despatched to outside the State the dealer would be entitled
for input rebate paid in excess of 2% on the local purchase). In case of export of the goods
(both direct and indirect) the output tax is zero and input tax rebate is available only on the
purchases made in the State of Karnataka.
(c) In the monthly return prescribed under VAT Rules namely Form VAT 100, the above types
of purchases and sales are itemized. The dealer has to extract the details from the books of
account and fill the return form.
(d) The input tax rebate is taken while filing the VAT monthly return by reducing the output
tax. For example: For a given month the input tax paid by a dealer is say Rs.10,000/- and the
output tax payable is say Rs.20,000/-, then net-tax payable would be Rs.10,000/- (20,000 10,000). Please note that in the tax invoice, VAT is charged and collected on the entire output
value. And in the bill of sale issued under interstate sales, CST could be collected separately
or it could be included in the sale price also. In case of direct and indirect exports no taxes are
collected but the VAT paid on the locally purchased inputs is fully rebatable.
IN CASE OF DISTRIBUTOR: In case of distributors / wholesaler the conditions noted in para 1(a), (b), (c) &(d)
above applies with the following modifications: Under para 1(b) the ''For interstate
consignment of goods distributors / wholesaler would be entitled for input rebate paid in
excess of 2% on the local purchase.''
IN CASE OF RETAILERS: In case of retailers the conditions noted in para 1(a), (b), (c) &(d) above applies with
the following modifications: Further the retailers within the turnover limit between 2-15 lakhs
could opt for composition tax of 1% on their sales. The condition prescribed to remain under
composition scheme is apart from turnover limit; such dealer must not effect any interstate
purchases (except a dealer executing works contract with certain conditions), must not claim
any input tax rebate and must not collect output tax.

Businesses covered by VAT: The VAT system embraces all businesses in the production and supply chain, from
manufacture through to retail. VAT is collected at each stage in the chain when value is added
25

to goods. 1t applies to al1 businesses, including importers, exporters, manufacturers,


distributors, wholesalers, retailers, works contractors and lessors.

Registration under VAT: Rules for registration: If a dealers annual turnover exceeds the below mentioned threshold, then it must
register with the local office of the Sales Tax Department.
All Figures in Rs.
Category

Importer
Others

Annual Turnover of Turnover of sales or Fees

payable

Sales

purchase of taxable registration

1,00,000
5,00,000

goods not less than


10,000
10,000

100
100

If the dealers turnover is less than the above threshold, then they are not liable to
collect and pay VAT. However, if a dealer wishes to avail the benefits of being a registered
dealer, then they may apply for voluntary registration by paying a fee of Rs.5,000/ -.

Benefits of being a registered dealer: As a registered dealer, they are entitled to:
collect VAT on the sales;
claim set-off of tax (input tax credit) paid on purchases;
Issue tax invoices and, be competitive.

Composition scheme under VAT Act: Registration and payment of taxes under VAT Act can be of two types. First type is the
registration and payment of taxes under full VAT and second type is the registration and
payment of taxes under composition.
The option should be exercised by a dealer, while applying for registration in the
prescribed VAT Form 1. A dealer who is already registered under full VAT could also opt for
composition subjected to certain condition mentioned hereunder:
Conditions prescribed for registration under composition:A dealer applying for registration under composition should fulfill the following
conditions:
1) Dealer should either be a registered dealer under the Act or shall be making an application
for registration under the Act.
2) The stock of the dealer shall not comprise of goods purchased from outside the state.
3) Dealer shall not be purchasing goods from outside the state.
26

on

4) Dealer should not have claimed input tax rebate on the transition stock.
5) Dealer shall not be selling liquor.
6) Dealer shall not make interstate sales (except a dealer executing works contract with
certain conditions)
7) Dealer shall not effect export sales.
8) Dealer shall not be a casual trader.
9) Dealer shall not be a dealer who has taken voluntary registration under section 23 of the
VAT Act.
In order to avoid frequent changes from full VAT to composition there is a restriction
of a minimum retention of 12 months as a registered dealer under full VAT; before exercising
the option to go in for registration under composition scheme.
Category of dealers eligible for composition scheme:
Subject to the condition laid above, only the following dealers are eligible for
composition scheme:
1) Dealer whose annual total turnover is between 2 lakh and 15 lakh.
2) Dealer who executes Works Contract.
3) Dealer who is either a hotelier or restaurateur or a caterer and or a dealer running a
sweetmeat stall or an ice cream parlour or a bakery
4) Dealer producing granite metal and other than granite metal by using stone crushing
machinery.
The applicable rate of tax for the dealers under composition scheme and the ceiling of the
turnover prescribed along with periodicity for filing the returns are indicated in the table
below.
Features to be noted by composition dealer:
1) The Composition dealer will be provided with a certificate of composition called Form
VAT 8. The dealer applying for Composition Scheme shall be collecting regular rate of tax
under section 4 till he gets the certificate.
2) After service of 'Certificate of Registration' under composition such a dealer is barred from
collecting the tax. This is clearly mentioned in the said certificate.
3) No 'tax invoice' meant for full VAT dealers can be raised by dealer under composition.
They should raise sales invoice as prescribed under the VAT Rules.
4) The Composition dealer is barred from taking input tax credit. The input tax credit even on
transition stock is also not allowed.
5) Dealer exceeding the turnover limit of Rs. 15 lakhs in a year [except dealers executing in
Works Contract], Hotelier, restaurateur or caterers or a dealer running a sweatmeat stall or an
ice cream parlour or a bakery and dealer producing granite metal by using stone crushing
machinery, shall automatically enter into full VAT from the first day of the month succeeding
the month in which he exceeds the threshold.
27

In such cases, the dealer shall file the final return under Composition Scheme up to the end of
that month and shall start charging regular rate from the first of next month.
6) The dealer coming under the Composition Scheme becomes ineligible for the Scheme if he
purchases goods from outside the state or if he imports the goods from outside the territory of
India ( except for a dealer executing works contract with certain conditions) and he shall start
paying at regular rate of tax from the first day of the month in which he has made such
purchases.
7) The dealer under Composition Scheme, other than a hotelier, restaurateur or caterer and a
dealer producing granite metal by using stone crushing machine, shall be filing his returns in
the Form VAT 120 once in a quarter which will have to be filed by 15th of the month
following the relevant quarter. This filing of return every quarter is compulsory even if the
tax payable is nil.
Quarter is defined as the period ending on final day of months of March, June, September and
December. For others, filing of returns is monthly in Form VAT 120within fifteen days after
the end of the relevant month. Revised return can also be filed in Form VAT 120 only.
8) While moving from Composition to full VAT Scheme, he shall surrender his Form VAT 8
certificate file a final return in Form VAT 120 with full payment of tax.
9) For the dealers who have opted for full VAT or composition during 2002-03 and they have
been allotted TIN during that period, have been given the option to modify the option from
1st April. The relevant Rule is extracted hereunder:
Rule 181: Transitional provisions:- Subject to these rules, any application made by a dealer
for registration under the Act before the commencement of these rules shall be deemed to be
an application made under rule 4 and such dealer shall be permitted to make any modification
in the application made by submitting an application in Form VAT 1.

Sr. No.

Types of Dealers

Turnover

limit
composition Upto 15 lakhs

Rates of taxes

Period

1%

filling return
Quarterly

1.

Regular

2.

dealers
Trader/Manufacturer
Dealers executive workers No

turnover 4%

Monthly

3.

contract
limit
Hotelier, restaurateur or No turnover 4%

Monthly

caterer

for

limit

In respect of a dealer being a mechanised crushing unit producing granite metals, at the
following rates,
28

Sr. No.

Capacity

Rates

Period
filling

{1}

{2}

{3}

For each mechanised crushing machine of Rs.


size exceeding 16*9

Ii

16,500

per Monthly

8,250

per Monthly

month

For each mechanised crushing machine of Rs.


size exceeding 12*

month

CHAPTER 4
SCHEDULE
1[FIRST SCHEDULE]
(Goods exempted from tax under sub-section (1) of section 5)
1
2.

. Agricultural implements manually operated or animal driven.


Aids and implements used by handicapped persons.
29

for

3.
4.

All seeds for sowing other than oil seeds.


All varieties of textiles and fabrics (produced or manufactured in
India) including declared goods but other than those specified
Elsewhere in Third Schedule 1[or notified by the Government.
1. Inserted by Act 4 of 2006 w. e .f. 1.4.2006.
5.
(i) Animal feed and feed supplements, namely, processed
commodity sold as poultry feed, cattle feed, pig feed, fish feed,
fish meal, prawn feed, shrimp feed and feed supplements and
mineral mixture concentrates, intended for use as feed
supplements;
(ii) Chunni of pulses, de-oiled cake and wheat bran.
1. Substituted by Act 4 of 2006 w. e. f. 1.4.2006.
6.
Animal 1[shoe and nails.]
1. Substituted by Act 4 of 2006 w .e. f. 1.4.2006.
7.
Aviation turbine fuel.
8.
Awalakki (Beaten rice) and Mandakki (Parched rice or puffed
rice).
9.
Bangles of all materials excluding precious metals.
10.
Betel leaves.
11.
Books, Periodicals and journals including maps, charts and globe.
12.
Bread and bun.
13.
Cart driven by animals [and their parts, but excluding rubber tyres, tubes and flaps]
1. Inserted by Act 4 of 2006 w. e. f. 1.4.2006.
14.
Charakha, Ambar Charaka, handloom fabrics and Gandhi Topi.
15.
Charcoal and firewood except Casurina and Eucalyptus timber.
[2004: KAR. ACT 32]
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.

Coarse grains and their flour excluding paddy, rice and wheat and
their flour.
Condoms and contraceptives.
Cotton and silk yarn in hank.
Curd and butter milk.
Diesel.
Earthen Pots.
Electrical energy.
Fish seeds, Prawn seeds, Shrimp seeds, fishing nets and twine
and fishing requisites including purse-seiners and gill netters, but
excluding boats, trawlers and other mechanized boats.
Fresh milk and pasteurised milk.
Fresh plants, saplings, fresh flowers, plantain leaves, patravali (dinner leaves) and

their products.
Fresh Vegetables & fresh fruits.
Garlic, ginger, green chillies, onions, potatoes, sweet potatoes,
tapioca and their seeds.
28.
Hay (green or dry).
29.
Human blood 1[including all its components]1
1. Substituted by Act 4 of 2006 w. e. f. 1.4.2006.
30.
Jaggery.
26.
27.

30

31.
32.
33.
34.
35.
36.

Khadi garments including made-up articles; other goods sold by


Khadi and Village Industries as may be notified.
Kumkum, bindi and sindhur.
Leaf plates and cups whether pressed or stiched.
Liquor including Beer, Fenny, Liqueur and Wine.
Lottery tickets.
Meat including flesh of poultry, fish, prawns, shrimps and lobsters, [not cured or
frozen] eggs, livestock including poultry, but excluding horses; raw wool.
1. Substituted by Act 4 of 2006 w. e. f. 1.4.2006.

37.
38.

National flag.
Non-judicial stamp paper sold by the Government Treasuries and authorized vendors;

postal items like envelopes, post card including greeting cards and stamps sold by the
Government; rupee note when sold to the Reserve Bank of India; cheques, loose or in book
form.
39.
Organic manure, Compost manure, fish manure and poultry manure.
40.
Pappad.
41.
Petrol including special boiling spirit.
42.
[XXX]
43.
Salt.
1. Omitted by Act 6 of 2007 w. e. f. 1.4.2007.
44.
Semen including frozen semen.
45.
Silkworm eggs, silkworm pupae, silkworm cocoons and raw silk including raw silk
yarn, but excluding raw silk imported from outside the country.
46.
Slates, slate pencils and chalk crayons.
47.
Sugar (produced or manufactured in India) as described from time to time in Column
2 of the First Schedule to the Additional Duties of Excise (Goods of Special Importance) Act
1957 (Central Act 58 of 1957).
48.
Sugar cane.
49.
Tender coconuts.
50.
[XXX]
1. Omitted by Act 6 of 2007 w. e. f. 1.4.2007.
51.
Toddy, Neera and Arrack.
52.
Unbranded broom sticks.
53.
Vibhuthi.
54.
Water other than.[2004: KAR. ACT 32]
(i) aerated, mineral, distilled , medicinal , ionic , battery and de-mineralised water;
and (ii) water sold in sealed container.
31

1. Inserted by Act 27 of 2005 w. e. f. 7.6.2005.

SECOND SCHEDULE: GOODS TAXABLE AT ONE PER CENT: [Section 4(1)(a)(i)]


Serial Number

Description of goods

1.
Bullion and specie
2.
[xxx]
3.
[ XXX ]
1. Omitted by Act 12 of 2011 w. e. f 1.4.2011
Value Added Tax 817
[THIRD SCHEDULE
[XXX]
1. Omitted by Act 4 of 2010 w. e. f. 1.4.2010.
[section 4(1) (a) (ii)]
Serial Number
Description of goods
(1)
(2)
1.
Agricultural implements not operated manually or not driven by
animal
2.
All kinds of bricks including fly ash bricks; refractory bricks and the
like; ashphaltic roofing sheets; earthen tiles.
3.
All processed fruit and vegetables including fruit jams, jelly, pickle,
fruit squash, paste, fruit drink and fruit juice (whether in sealed
container or otherwise)
4.
All types of yarn other than cotton and silk yarn in hank; sewing thread
5.
All utensils 2 [xxx] 2 including pressure cookers and pans and cutlery, but excluding
stoves, trays, baskets and other containers, furniture, instruments, implements and tools used
in kitchen or household and utensils made of precious metals.
1. Substituted by Act 4 of 2006 w. e. f. 1.4.2006.
2 Omitted by Act 12 of 2011 w. e. f 1.4.2011
6.
Animal hair
7.
Arecanut and powder
8.
Bamboo and cane including bamboo splints and sticks
9.
Bearings, (excluding parts of motor vehicles) namely.1. Inserted by Act 4 of 2006 w. e. f. 1.4.2006.
(1)
Ball bearings
(2)
Tapered roller bearings including cone and tapered roller
assemblies
(3)
Speherical roller bearings
(4)
Needle roller bearings
32

(5)
(6)

Other cylindrical roller bearings


Other, including combined ball or roller bearings

[2004: KAR. ACT 32]


(7)
Plummer blocks, bearing housing, locate rings and covers, adopter withdrawal
sleeves, locknut, lock-washer clamps and rolling elements
10.
Beedi leaves
11.
Beehive
12.
Beltings, namely, Transmission, conveyor or elevator belts or belting of vulcanized
13.

rubber whether combined with any textile material or otherwise.


Bicycles, tandem cycles, cycle combinations, cycle-rickshaws, childrens tricycles and

similar articles and parts and accessories thereof including their tyres, tubes and flaps.
14.
Biomass briquettes
15.
Bitumen and cold tar. Inserted by Act 4 of 2006 w. e. f. 1.4.2006.
16.
Bone meal
17.
Buckets made of iron and steel, aluminium, plastic or other materials
except precious metals
18.
Bulk Drugs
19.
Candles
20.
Capital goods as may be notified
21.
Centrifugal and monoblock and submersible pumpsets and parts
22.
Chalk stick
23.
Chemical fertilizers, chemical fertilizer mixtures; bio-fertilizers, micro nutrients,
gypsum, plant growth promoters and regulators; rodenticides, fungicides, weedicides and
herbicides; insecticides or pesticides but excluding phenyl, liquid toilet cleaners, floor
cleaners, mosquito coils, mosquito repellents and the like used for non agricultural or nonhorticultural purposes.
1. Substituted by Act 5 of 2008 w. e. f. 1.8.2008.
24.
Coffee beans and seeds (whether raw or roasted); cocoa pods and beans; green tea leaf
and chicory.
25.
Coir and coir products excluding rubberised coir products.
26.
Combs
27.
Cotton waste and cotton yarn waste.
28.
Crucibles
29.
Cups and plates of paper and plastics
30.
[ xxx]
Omitted by Act 12 of 2011 w. e. f 1.4.2011
31.
Edible oils (Non-refined and refined), but excluding coconut oil sold in sachets,
bottles or tins of 200 grams or 200 mililitre each or less, including when such consumer
containers are sold in bulk in a common container; oil cake.
32. Embroidery or zari articles, that is to say,-imi,zari, kasab, saima dabka,chumki,gota
sitara, naqsi,kora,glass bead,badia, gizal
33

33.
34.

Exercise books, student note books, graph books and laboratory note books.
Exim scrips, REP licenses, special import licenses (SIL), value based advance

licenses (VABAL), Export quotas, DEPB licenses, copyrights, patents and the like [including
software licences by whatever name called.]
1. Inserted by Act 6 of 2007 w. e. f. 1.4.2007.
35.
Feeding bottle and nipple
36.
Fibres of all kinds and Fibre Waste
37.
Fireclay, clay, coal ash, coal boiler ash, fly ash, coal cinder ash, coal powder and
38.

clinker.
Flour (Atta), Maida and Soji of wheat; flour and soji of rice; [soji and poha of maize;]

39.
40.
41.
42.
43.

flour of pulses
1. Substituted by Act 4 of 2006 w. e. f. 1.4.2006.
Fried gram
Hand pumps , parts and fittings
Handicrafts excluding furniture
Honey
Hose pipes and fittings thereof 1[excluding parts of motor vehicles] Value Added Tax

44.
45.
46.
47.
48.
49.

2004: KAR. ACT 32 Inserted by Act 4 of 2006 w. e. f. 1.4.2006.


Hosiery goods
Husk and bran of cereals and pulses.
Ice
Idol made of clay and clay lamps
Imitation Jewellery, Synthetic gems and hairpins
Incence sticks commonly known as agarbathi, dhupkathi or dhupbathi including

sambrani and lobana


50.
Indian musical instruments namely, Veena, violin, tambura, mridanga, ghatam,
khanjira, harmonium, flute, star, sarod, santoor, dilruba, nadaswara, dolu, tabla, shehnai,
pakwaz, vichitra veena, gotu vadyam, morsing, chande, triangle, rudraveena and sarangi and
parts and accessories thereof.
51.
Industrial inputs and packing materials as may be notified
52.
[Industrial cables other than copper and alluminium single core PVC cable upto six

53.
54.
55.
56.
57.
58.
59.
60.

square milimetre for use upto1100 Volts.]


1. Substituted by Act 6 of 2007 w. e. f. 1.4.2007.
IT Products including telecommunication equipments as may be notified.
Kerosene lamps and lanterns, petromax, glass chimney
Kerosene oil sold through Public Distribution System ( PDS)
Khova
Kites
Lignite
Lime, limestone, products of lime, dolomite and other white washing materials.
Medical and pharmaceutical preparations; Medicated ointments manufactured or

imported under license granted under the Drugs and Cosmetics Act 1940; Light liquid

34

paraffin of IP grade; Wadding gauze, bandages and similar articles for medical, surgical,
dental or veterinary purposes; [Surgical gloves and Syringes including needles]

Diagnostic or laboratory reagents including prepared diagnostic or laboratory


reagents. Substituted by Act 4 of 2006 w. e. f. 1.4.2006.
61.
Medical equipments, devices and implants
62.
Medicinal plants, roots, herbs and barks used in the preparation of Ayurvedic
medicines.
63.
Mixed PVC stabilizer [;plastic boxes, cases and crates for conveyance or packing of
goods]. Shall be deemed to have been inserted by Act 5 of 2008 w.e.f.7.6.2005.
64.
Moulded plastic footwear fully made of plastic and of single mould, hawai chappals
65.
66.
67.

(rubber) and their straps.] Substituted by Act 4 of 2006 w. e. f. 1.4.2006.


Napa Slabs (Rough flooring stones) and Shahabad stones
Non-ferrous castings
Non-ferrous metals and alloys; Ingots, slabs, blocks, billets, sheets, circles, hoops,
strips, bars, rods, rounds, squares, flats and other extrusions of Aluminium, brass,
bronze, copper, cadmium, lead and zinc, metal powders, metal pastes of all types and

68.
69.

grades, metal scraps and waste.


Oil Seeds other than those specified in serial number 30
[(I) Paper of all kinds including ammonia paper, blotting paper,
carbon paper, cellophane, PVC coated paper, stencil paper, tissue paper, water proof

paper, art boards, card boards, corrugated boards, duplex boards, pulp boards, straw boards,
triplex boards and the like, but excluding photographic paper. (II) Waste paper, paper waste
and newsprint.] Substituted by Act 4 of 2006 w. e. f. 1.4.2006.
70.
71.

Pipes, tubes and fittings of all kinds excluding electrical conduit pipes and its fittings.
Printed materials other than books meant for reading; stationaryarticles namely,
Account books, paper envelopes, diaries, calendars, race cards, catalogues, greeting
cards, invitation cards, humour post cards, picture post cards, cards for special

72.
73.

occasions, photo and stamp albums, computer stationery.


Printing ink excluding toner and cartridges.
Meat including flesh of poultry, fish, prawns, shrimps and lobsters when cured or

74.
75.
76.
77.
78.

frozen or processed.] Substituted by Act 4 of 2006 w. e. f. 1.4.2006.


Pulp of bamboo, wood and paper.
Pulses other than those specified in serial number 30.
Rail coaches, engines, wagons and parts thereof.
Rakhi
Readymade garments, clothing accessories and other made up textile articles:-

35

(1) Clothing accessories including socks, stockings, gloves, shawls, scarves, mufflers,
mantillas, veils, ties, bow-ties, knitted or crocheted
(2) Clothing accessories, not knitted or crocheted, including handkerchiefs, shawls,
scarves, mufflers, mantillas, veils, ties, bow-ties, cravats, gloves headbands
(3) Blankets and travelling rugs
(4) Bed linen, table linen, toilet linen and kitchen linen and other made ups
(5) Curtains (including drapes) and interior blinds; curtain and bed valances
(6) Other furnishing articles
(7) Woven labels, badges and the like. Inserted by Act 4 of 2006 w. e. f. 1.4.2006.
79.
Religious pictures not for use as calendar
80.
Renewable energy devices and parts thereof
81.
Sacred thread (janivara)
82.
Safety matches
83.
Sand and grits
84.
Sewing machines and parts and accessories thereof
85.
Ship and other water vessels including non-mechanised country boats
86.
Skimmed milk powder ,UHT milk and cottage cheese
87.
Solvent oil other than organic solvent oil
88.
Spectacles, lenses and frames including attachments, parts and accessories thereof
[but excluding sunglasses and goggles and their lenses, frames, other attachments, parts and
accessories] contact lens and lens cleaner. Inserted by Act 4 of 2006 w. e. f. 1.4.2006.
89.
Spices in all forms including jeera (cumin seeds), methi, poppy seeds (kaskas),
Corriander (dhaniya), shajeera, somph, katha, azwan, kabab chini, bhojur phool, tejpatha,
japatri, nutmeg (marathamoggu), kalhoovu, aniseed, turmeric, cardamom, pepper, cinnamon,
dal chinny,cloves, tamarind and dry chillies; [including cut chillies, spent chillies and chilly
seeds, but excluding spices in the form of masala powder, instant mixes or other mixtures
containing more than one spice or a spice with any other material wet dates; Hing
(Asafoetida)
90.
Sports goods (indoor and out door) including body building equipments, but
excluding wearing apparels and footwear.
91.
Starch including sago; tamarind seed and tamarind powder
92.
Tea
93.
Tools, namely.(1) Hand saws; blades for saw of all kinds
(2) Pliers including cutting pliers
(3) Hand operated spanners and wrenches (including torque meter wrenches but not
including tap wrenches); interchangeable spanner sockets, with or without handle
(4) Drilling, threading or tapping tools
(5) Planes, chisels, gouges and similar cutting tools for working wood
(6)
Screwdrivers

36

(7)

Interchangeable tools for hand tools, whether or not power operated, or for machinetools including dies for drawing or extruding metal, and rock drilling or earth boring

(8)

tools.
Tools for working in the hand, pneumatic, hydraulic or with self-contained electric or

non-electric motor.
94.
Toys excluding electronic toys
95.
Tractors and Power tillers, their parts and accessories including trailers, but excluding
batteries, tyres, tubes and flaps.
96.
Transmission towers (electrical) and wires, and conductors such as Aluminium
97.
98.
99.

conductor steel reinforced.


Umbrella except garden umbrella
Vegetable oil including gingili oil, bran oil and castor oil excluding
vegetable oil use as toilet article and edible oil.
Welding Electrodes of all kinds, graphite electrodes including anodes, welding rods,

soldering rods and soldering wires


100. Writing instruments and writing ink, namely.(1) Ball point pens
(2) Felt tipped and other porous-tipped pens and markers
(3) Indian ink drawing pens
(4) Fountain pens
(5) Propelling or sliding pencils
(6) Refills for ball point pens, comprising the ball point and the
ink reservoir
(7) Pen nibs and nib points
(8) Pencils and crayons with leads encased in a rigid sheath
(9) Pencil leads, black or coloured
(10) Pastels and drawing charcoals other than chalks
(11) Geometry boxes, colour boxes, pencil sharpeners
(12) Writing ink
1. Substituted by Act 27 of 2005 w. e. f. 7.6.2005.

FOURTH SCHEDULE
GOODS TAXABLE AT 20 %
[Section 4(1)(a)(iii)]

Serial Number
1
1.
2.
3.
4.

Description of goods
2
Narcotics
Molasses
[3. Denatured anhydrous alcohol
Denatured Spirit
37

5.
6.

Ethyl alcohol
Rectified Spirit

1. Inserted by Act 6 of 2007 w. e. f. 1.4.2007.

FIFTH SCHEDULE
INPUT TAX RESTRICTED GOODS.
(Section 11(3))
Serial Number
1

Description of Goods
2
1.

Motor vehicles of all kinds, aeroplanes, helicopters or any other


type of flying machine, parts and accessories thereof including

tyres, tubes and flaps.


2. Articles of food and drinks, including cakes, biscuits and
confectionery; ready to serve foods; processed or semiprocessed or
semi-cooked food-stuffs; fruits, fruit and vegetable products sold in
any kind of sealed containers; dressed chicken,meat, fish, prawns,
shrimps and lobsters sold in any kind of
sealed containers; aerated water, including soft drinks; sweets and
sweet meats; instant mixes; soft drink concentrates; spice powders,
pastes and the like; tobacco and tobacco products.
3.

All electrical or electronic goods and appliances including air


conditioners, air coolers, telephones, fax machines, duplicating
machines, photocopiers and scanners, parts and accessories thereof,
other than those for use in the manufacture, processing,packing or
storing of goods for sale and those for use in computing, issuing
tax invoice or sale bills, security and storing information.

4. Textiles, crockery, cutlery, carpets, paintings and artifacts.


5 Furniture including slotted angles and ready to assemble parts of
furniture, stationery articles including paper, sanitary fittings,

38

cement and other construction materials including bricks,


timber,wood, glass, mirrors, roofing materials, stones, tiles and
paints,toilet articles.

SIXTH SCHEDULE
[Section 4(1) (c)]

Serial

Description of work contract

Rate of tax

1.
2.
3.

Bottling, canning, and packing of goods.


Dyeing and printing of textiles.
Electroplating, electorgalvanising, anodizing and the

5%
5%
5%

4.

like
Fabrication and erection of structural works, including

5%

No.

fabrication, supply and erection of iron trusses,


5.

purlines , etc.,
Fabrication or supply and installation of capital
goods specified

in serial

5%

number 20 in Third

6.

schedule
Lamination, rubberisation, coating and similar

5%

7.
8.
9.

process,(including power coating).


[XXX]
Printing, block making
Processing and supplying of

5%
5%
5%

photographs,

photoprints and photo negatives.


10.

Processing,

printing

and

supplying

of

5%

cinematographic films.
11.
12.

Programming and providing of computer software.


Providing and laying of steel pipes for purpose other
than for pluming, drainage and the link.

5%
At the maximum rate specified
for declared for declared
goods in section 15 of the
Central sales Act ,

13.

1956(Central Act74of1956)
5%

Rewinding of electrical motors.


39

14.

Service and maintenance of IT product including

5%

Telecommunications equipments specified in serial


15.
16.
17.
18.

number 53 of Third Scheduled.


Sizing and dyeing of yarn.
Supply of election of electrical transmission towers.
Supplying and fixing of Shahabad slabs and stones.
Supply and installation of centrifugal, mono block,

5%
5%
5%
5%

19.
20.

and submersible pump sets.


Supply and training out of stone ballasts
Supply, erection, installation and commissioning of

5%
5%

21.
22.

renewable energy device.


Tyre retreading .
Composite contract involving two or more of the

23.

above categories.
All other works contracts not specified in any of the

5%

14%

above categories including composite with one or


more of the above categories.

VAT RETURN: -

Surcharges and penalties: HM Revenue and Customs (HMRC) record a default if:
they dont receive your VAT return by the deadline
full payment for the VAT due on your return hasnt reached their account by
the deadline

Surcharges: -

You may enter a 12-month surcharge period if you default. If you default
again during this time:
40

the surcharge period is extended for a further 12 months


you may have to pay an extra amount (a surcharge) on top of the VAT you
owe
HM Revenue and Customs (HMRC) will write to you explaining any
surcharges you owe and what happens if you default again.

How much you pay: -

Your surcharge is a percentage of the VAT outstanding on the due date for the
accounting period that is in default. The surcharge rate increases every time you
default again in a surcharge period.
This table shows how much youll be charged if you default within a surcharge
period.
You dont pay a surcharge for your first default.

DEFAULT WITHIN 12
MONTHS

SURCHARGES IF
ANNUAL TURNOVER IS
LESS THAN 1,50,000

SURCHARGES IF
ANNUAL TURNOVER IS
1,50,000OR MORE

2nd

No surcharge

3rd

2% (no surcharge if this is


less than 400)
5% (no surcharge if this is
less than 400)
10% or 30 (whichever is
more)
15% or 30(whichever is
more)

2% (no surcharge if this is


less than 400)
5% (no surcharge if this is
less than 400)
10% or 30 (whichever is
more)
15% or 30(whichever is
more)
15% or 30 (whichever is
more)

4th
5th
6 or more

Exceptions: -

Theres no surcharge if you submit a late VAT Return and:


Pay your VAT in full by the due date.
Have no tax to pay.
41

Are due a VAT repayment.

Penalties: -

HMRC can charge you a penalty of up to:


100% of any tax under-stated or over-claimed if you send a return that
contains a careless or deliberate inaccuracy.
30% of an assessment if HMRC sends you one thats too low and you dont
tell them its wrong within 30 days.
400 if you submit a paper VAT Return, unless HMRC has told you youre
exempt from submitting your return online.

RESEARCH METHODOLOGY: Company name: Marco Refrigerator Company.


Floor And Building Name: - Shop No. 44, Sector 17, J. K. Chambers, Vashi
Turbhe Road City. 400703.
District And State: Navi Mumbai , Maharashtra.
Sales Commodity: Electronic Goods.
MARCO REFRIGERATOR SALES :Commodity Description
Compression For Refring
Copper Tubing
Gas Monochlore Dibluoro

Schedule Entry
SCH-E
C-72
C 54

Commodity Category
null
null
null

Methan
Nuts Bolts
SCH C 107(10)
Gas Monochlora Dibluoro C 54

null
null

Meth
Compressors For Refring
Nuts Bolts

null
null

Freeon Gas
Copper Tubing

SCH-E
SCH-E-107
(10)
SCH-54
C 72

null
null

Review of Literature: Kapoor and Dhaliwal (2009) discussed the various procedural reforms under VAT in India
with special reference to Punjab Value Added Tax Act 2005. It studied the working of value
42

added tax, incidence of tax, input tax credit mechanism, payment of VAT, filing of returns and
refund procedure under VAT. The paper attempted to study and compare the present state
value added tax and earlier state sale tax on the basis of incidence of tax and other procedural
requirements. Under earlier sales tax structure, before commodity was produced, inputs were
first taxed and then taxed again with input tax load after commodity was produced thus
causing an unfair double taxation with cascading effects. On the other hand, under the VAT,
set-off is given for input tax as well as tax paid on previous purchases. Further, there was
multiplicity of taxes in several states like turnover tax, surcharge on sales tax, additional
surcharge etc. But with introduction of VAT, these other taxes have been abolished resulting
in overall rationalization of tax burden. Moreover, VAT has replaced the earlier system of
inspection by a system of built-in self-assessment by the dealers. The study concluded that
the present state value added tax system of taxation is more simple and transparent as
compared to the earlier state sale tax system of taxation.
Tripathi et al. (2011) evaluated that Value Added Tax would change the nature of trade in the
coming years, but the medium level of trade would face problems. Similarly, small retail
dealers would be required to maintain more accounts or pay composition money which
cannot be collected from the customers. The present provision of central sales tax and Value
Added Tax cannot go together. After the abolition of central sales tax the direct marketing
concept may gain ground and the necessity of having warehouse, go downs etc. in all states
may decrease or finish. Value added tax in India has been introduced in modified variants
over the past two decades. However, Value Added Tax in its original form is yet to be
introduced in India, at Central or State level. After the negative and positive impact on the
Indian consumers, Value Added Tax has been identified as the real goal maker by the Indian
government in the coming years to foster growth and prosperity in the country. The change in
the standard of livings has increased the purchasing power of the high class society but the
medium and the poor class society has to work hard in order to achieve their living and meet
extravagances.
Deshmukh (2012) analysed the impact of VAT on profitability of manufacturing Industries in
Maharashtra. This paper revealed that the share of BST/VAT has increased from 52.2 per cent
to 64.8 per cent during 2001-02 to 2009-10 in sales tax revenue gross receipts of the
Maharashtra. MST and CST has become the second and third largest contributor after
43

BST/VAT in sales tax revenue gross receipts of Maharashtra. This paper suggested that it
would be in the interest of both state governments and tax payers to have uniform laws and
procedures for tax administration. In the medium term, a consensus tax administration act
will greatly reduce the cost & will lead to increase in the profitability of an organization. The
existing VAT system has increased the tax revenue as well as the profitability of the
organization. VAT has simplified the paper work, proved to be user friendly, reduced
transaction costs and time since e- registration has been made compulsory for every dealer. It
is suggested and emphasized that VAT reduces the cascading effect. Therefore, rather than
prescribing different rates for different goods, a uniform VAT will improve economic
efficiency. It is suggested to prepare the infrastructural setup requisite for adequate
automation in tax administration before the GST implementation.
Muthu and Senthil (2013) assessed the attitude of Pharmaceutical Retailers towards VAT in
TiruchendurTaluk of Tuticorin District. The researcher study was about the concept and
structure of VAT, identify the practical problems encountered by under VAT and find out what
are the beneficial aspects enjoyed by pharmaceutical retailers under VAT. A sample sizes are
55 Pharmaceutical Retailers, using the purposive sampling techniques. The primary data was
gathered using interview schedule and analysed by use of percentage method, T Test,
Analysis of Variance (ANOVA) and F Test were used in the appropriate places. The
researcher conclude that Value Added Tax is a new tax format for all pharmaceutical retailers
with the introduction of VAT, there are some new formalities and hidden problems for them.
But most of the retailers showed favourable attitude towards VAT implementation. The
problems like daily maintenance of opening and closing stock, bill maintenance, selfassessment, computerizing the account should be sympathetically viewed by the Government
for considering the development of the pharmaceutical retailers.
Sunder and Jain (2013) concluded that although the VAT figures in the present research on
impact of VAT on automobile industry are near about equal to the sales tax figures but VAT
amount will definitely increase in the next stage and will benefit the government revenue. On
the observation basis researcher concluded that although the overall tax burden figures in the
research are decrease to the final consumer and it will definitely more decrease in the next
stage and will benefit the consumer. VAT introduces the uniform tax rates across the state so
that unfair advantages cannot be taken while levying the tax on Auto products. A general
44

survey reveals slashing of prices on items like medicine, automobile products, cosmetics,
paper etc. due to downward revision of tax rates and abolition of surcharge and because of
availability of the facility of set off of tax paid on inputs as well as capital goods against tax
payable on finished products under VAT scheme eliminating the cascading effect, the cost of
production of commodities are likely to fall not only making the product of the local
industries competitive on one hand, but it will also benefit the consumers by way of resultant
reduction in prices of the commodities on the other.

CONCLUSION: From the broad view Value Added Tax has replaces the already existing sales tax thus
it passed on to the customers without affecting the business processes. The major concern of
the govt. is with respect to the smooth enforcement, collection of the tax & regulation of the
tax. But for an enterprise, VAT is not just a replacement of sales tax but an information input
for their business which can change the whole picture of business decisions. It is a change in
business strategies & affects every walk of life in business whether it is wholesalers,
Retailers, Chartered Accountants, Tax officials or consumers in India. Government
regulations constitute a vital element in the external environment of business & business
executive or the manager cant afford to ignore this vital element. He has to work out the
strategies in such a way as to fulfil the govt.s regulations as well as business needs. He will
have to incorporate this information into their business system. The business processes which
were tunes according to the old system of sales tax would have to be altered according to the

45

new system of VAT. This research paper is focused on the impact of VAT on Business
enterprises, Wholesalers, Retailers, Chartered Accountants, Tax officials and Consumers in
Delhi and to come up with practical & viable suggestions for better implementation of VAT.

G.T.O. - Purchases
5% Net
5% VAT

38,39,568.94 G.T.O. - Sales


24,51,576.06 5% Net
1,22,576.92 5% VAT

42,93,397.75
24,27,812.50
1,21,417.00

5% Net Expenses

12.5% Net

15,50,322.00

5% VAT Expenses

12.5% VAT

1,93,846.25

12.5% Net
12.5% VAT

11,24,190.17 OMS Sales against Form H


1,40,527.73 Replacement

0.00

12.5% Net Expenses

Old Scrap

0.00

12.5% VAT Expenses

Discount/R/off

0.00

U.R.D. Expense Purchase

Packing & Forwarding


Charges/ Courier Charges

O.M.S Purchases

Service Receipts

0.00

Goods Returned
5% Net
5% VAT
12.5% Net
12.5% VAT

0.00
0.00
0.00
0.00

P & F Courier Charges / R/off

M.V.A.T. Collected
VAT Liable to be collected
M.V.A.T. Payable
Set-Off Available
Total VAT Payable / (Refund)
Less :- Excess credit B/fd.
Total V.A.T Payable /
( Refund )

698.06

3,15,263.25
3,15,180.88
3,15,263.25
2,63,104.65
52,159.00
-1,21,884.00
-69,725.00
46

V.A.T PAID
Add : CST Payable Adjusted
Total V.A.T Payable /
( Refund )

0.00
0.00
-69,725.00

Bibliography: -

1. Value Added Tax By Sales Tax Department.

2. www.tax4india.com

3. www.vat.maharashtra.gov.in

47