Knowledge of GST and VAT difference is significant to the owner of a business, professional, and taxpayer. Both are consumption indirect taxes though they are structured, applied and have different effects. The reason why we are discussing GST and VAT in this blog is because anyone can easily understand it in a very simple language.
Introduction to VAT and GST
Consumers pay the indirect taxes but businesses that are registered collect the taxes on behalf of the government. Two such taxes are VAT and GST that are employed by most nations including India.
VAT (Value Added Tax) is imposed at various points of selling commodities.
GST (Goods and Services Tax) is imposed on the provision of both goods and services.
India used the system of VAT but now has introduced GST to streamline the tax-system.
First Countries to introduce VAT and GST
During World War I, such countries as Germany and France were the first to introduce VAT. France introduced a variation of the VAT in 1954 that was later to gain popularity in the world.
It can also be said that France is the pioneer country to introduce GST in 1954 in order to regulate tax evasion. VAT or GST is followed in approximately 175 countries today. The US does not practise GST or VAT and instead uses state-level sales tax.
What is VAT?
VAT is a tax that is based on consumption levied on the sale of goods at each supply chain of the production and the final sale.
Key Features of VAT
- Used in the case of goods but not services
- Charged at each stage of sale
- The rates are different in different states
- There is not the input credit on services
- Interstate input credit is prohibited
On 1 April 2005, to become a more structured tax system, VAT was introduced in India to replace sales tax.
Also Read: GST Registration Made Easy: Get Your GST Number in 3 Days Under Rule 14A
What is GST?
GST is an exchange based tax imposed on the delivery of goods and services. It is gathered at the point of consumption of the goods or services and not the point of production.
Key Features of GST
- Applies both to goods and services
- Single unified tax system
- Internet-based registration and submitting returns
- Input Tax credit at the inter-state level
- Equal taxing system in India
In India, GST came into effect on 1 July 2017 and this day has become GST Day.
Companies usually seek professional assistance with compliance, and most of them count on GST Registration services in delhi, so registration and submission will end up being straightforward.
Significant Disagreements between VAT and GST
The following are the key differences elaborated in simplicity:
Tax Point
VAT: This is levied on goods sold.
GST: The supply of goods and services is charged.
Tax Collection
VAT: Charged by the state of the seller.
GST: Stamp duty on the consumer level.
Registration Limit
VAT: This is obligatory upon ₹10 lakh turnover.
GST: This is compulsory above ₹20 lakh turnover.
Input Tax Credit
VAT: a limited and not applicable to services.
GST: It is available on goods and services.
Interstate Transactions
VAT: No input credit allowed
GST: Input credit is allowed
VAT and GST in India Today
A lot of taxes were eliminated after the introduction of GST, including service tax, excise duty and entertainment tax. Nonetheless, the application of VAT still remains on other products.
Products Still Under VAT
- Oil products (diesel and petrol)
- Alcohol as a human beverage
Each state treats these products differently and this is the reason there is a difference between prices in India.
VAT on Petroleum Products
State governments tax petrol and diesel under VAT. The various states impose different VAT thus fuel prices in the country will be varied. This is part of the reasons why fuel is yet to be taxed under GST.
VAT on Alcohol
In India, alcohol is very attractive to VAT. Different states have different rates of taxation.
- The Karnataka state has the highest tax rates on liquor
- The rates in Goa are relatively low
- Maharashtra and Rajasthan are also high VAT importers
Because of elevated VAT, the ultimate cost of alcohol is excessively high.
Disadvantages of VAT
VAT was limited in a number of ways making the GST necessary:
- Cascading effect of taxes
- Dissimilar VAT rates across the states
- There is no standardized tax system in India
- No credit of input on service tax
- CTS credit was unadjustable
These problems raised up costs and compliances by businesses.
The Advantages of the GST Implementation
The limitation of VAT was eliminated by introducing GST.
Major Benefits of GST
- Eliminates the trickle down impact of tax
- Taxation Uniform national taxation
- Basic internet registration and turnover
- Less business compliances
- Better transparency
- Better logistics and supply chain
- E-commerce business provisions
This is particularly helpful to the small businesses that prefer to use services of professional GST Registration services in delhi, so as to be on the right track.
Conclusion
GST has resulted in a massive change in the indirect taxation system in India. It has made taxation easier, minimized compliance cost and established a single market of one nation. Even though the same applies to petrol and alcohol, VAT is still applicable but GST is still developing and might bring on board more products in future.
In general, GST has been found to be more open, effective and business friendly than VAT.