india vat refund



India does not have any typical Value-Added Tax (VAT) structure. Instead we have separate taxes on sale of goods and on rendering of services.

But whatever the present scenario exists today, VAT will soon replace the existing sales tax in India. It will be levied according to the Value Added Tax Act and the Rules made under it. The main point in which VAT differs from the current single-point system of tax levy is that, under the present system the manufacturer or importer of goods into a State is liable to sales tax and there is no sales tax on the further distribution channel.Whereas VAT is a multi-point levy on each of the entities in the supply chain with the facility of set-off of input tax - that is, the tax paid at the stage of purchase of goods by a trader and on purchase of raw materials by a manufacturer. Only the value addition in the hands of each of the entities is subject to tax.

Sales tax / state VAT is a tax which is payable by the vendor to the Government but ordinarily, what the vendor does is that he extracts the amount of such tax from the vendor as part of consideration for sale of such goods thereby including the tax amount in the total consideration moneypayable by the buyer.

Few necessary items like medicine, agricultural products & industrial inputs have 4% VAT rates and rest have 12.5%. However the VAT charged on gold and silver products are normally at the rate of 1%. There are some products where the VAT rates are charged as zero such as the goods exported outside and the products manufactured on the business centralized in the Special Economy Zone.


To calculate the VAT amount you can use any of the three methods detailed below

♦  The Subtraction method: - The rate of tax will be applicable to the differentiation among the value of output and the cost of input.
♦  The Addition method: The value added is worked out by adjoining all the payments that should be paid to the factors of production (viz., wages, salaries, interest payments etc).
♦  Tax credit method: This requires set-off of the tax paid on inputs from tax collected on sales.

In India, the standard rate is 14% while the reduced rates are 4%, 1% and 0.
Presently there are two basic rates of VAT in India, namely, 4% and 12.5%. Apart from this there is an exempt category and a special rate of 1% for a few selected items. In the exempt category items of basic necessities and goods of local importance have been put up. These are roughly 10 items. Special rate of 1% have been put up on Gold, silver and precious stones. There is also a category with 20 per cent floor rate of tax, but the commodities listed in this schedule are not eligible for input tax rebate/set off. This category covers items like motor spirit (petrol, diesel and aviation turbine fuel), liquor, etc.






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