VAT has been present in India for 17 years until it was replaced by GST. GST is almost the same as VAT, as both fall under indirect taxes, GST and VAT are both charged on the supply of goods, services, and on sales which are, then paid by the end consumers to the sellers, and then the government collects it from these sellers. It’s also considered a consumption-based tax as both of them are ultimately paid by the end consumers. Even if these are a few possible similarities there are some of the main differences between VAT and GST. Before we get into the main differences let’s look at the meaning of VAT and GST.
Meaning of VAT and GST
VAT is also called Value Added Tax which was introduced on 1st April, 2005 that replaced sales tax in India. It’s levied on the sales of all taxed goods and collected indirectly by the Government. The additional tax was charged on the production of goods and services before it reached the end consumers.
GST is also called Goods and Services Tax which was introduced on 1st July, 2017 that replaced Value Added Tax in India. It is levied on the supply of goods and services with the Multistage tax system and indirectly collected by the government. It’s also called as a Single tax, as only one tax is used by the whole nation, without cascading of tax.
Main Differences Between VAT and GST
- VAT is charged on the sales of all the taxed goods while GST is charged on the supply of goods and services.
- VAT laws were different for each state as the State Government had its own laws and rates in each and every State while GST has uniform rates and laws all over the nation. It has a Dual GST model where both the Central and the State governments would collect taxes on Intra State level and Central Government collects taxes on the Inter-State level.
- VAT was only applied on goods as for services, service tax was applied while for GST it is applied on both the goods and services.
- In VAT, any person who has an annual turnover of more than 5 Lakhs could register for VAT. When it comes to GST any business that has an aggregate turnover of more than 40 Lakhs has to register for GST while there are certain states with a limit of up to 10 Lakhs.
- In India the VAT rates were 18% and 12%. The reduced rate was 5%. When it comes to GST, the goods and services are distributed into the 4 tier slab rates which are 5%, 12%, 18%, and 28 %.
- VAT had charged additional tax on the production of goods on each stage while GST cut off all the additional taxes charged on the goods and services in each stage which in turn got rid of cascading effect on tax.
- For VAT the registration can be done online or offline while for GST, the registration process is mostly done online and is simplified for taxpayers to register online.
The Calculation is done under
Price of the manufactured goods – Rs 20,000
Tax amount for Excise Duty (12.36%), (Rs 20,000 x 12.36%) – 2,472
Price of the goods, ready to be sold in the market – Rs 22,472
VAT is charged on the goods sold in the market to the end consumers (5%), (Rs 22,472 x 5%) – 1,124
Amount paid by the consumer – Rs 23,596
The selling price of a good – Rs 20,000
CGST@6% on Rs 20,000 – 1,200
SGST@6% on Rs20,000 – 1,200
Amount paid by the consumer – Rs 22,400
The difference between the prices under VAT and GST are
Rs 23,596 – Rs 22400 = 1,196
This amount ‘1,196’ shown is the cascading effect on tax that is shown in the calculation of VAT
GST has shown to get rid of the cascading effect of any goods and service and reduced the price comparatively shown in VAT.
In the above differences between VAT and GST it shows , GST has shown great impact in India and has benefited end consumers and many businesses even now. That is the reason why the Government decided to introduce GST.
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