We often come across terms such VAT, CST and Service Taxation. For online business or e-commerce, you should have a decent knowledge about these and understand how they work. Lack of an adequate knowledge about these could lead to penalties or complications in your business.
VAT or Value Added Tax is a consumption tax which is imposed when a value is added at the stage of production and at the sale of the product. It is basically the difference between the output VAT and the input VAT. For a clear understanding, refer to the following example.
For example: A dealer buys goods for Rs 62,000, and the input VAT is Rs 12,400
The dealer sells the goods for Rs 1,50,000, and the output VAT is Rs. 37,500
So the VAT payable is Rs (37,500-12,400= 25,100)
VAT registration is compulsory for dealers having a turnover of 5-10 lakhs.
Value added tax can also be recovered if the purchases exceed the sales. The difference would be refunded. However, individual customers cannot recover the VAT imposed on their purchases.
Nevertheless businesses can recover the VAT imposed on their purchases and services.
There are many products, mostly basic goods like food, water, medicine on which VAT is not levied.
VAT is a simplified system of paying tax and a solution to problems related to sales tax. Hence, sales tax has been replaced by VAT in many countries.
CST or the Central Sales Tax is a tax levied by the Central Government and is applicable only an in case of interstate sale which also means that the buyer and seller need to be in different states. CST is an indirect tax which runs almost parallel to VAT conditions. The only difference is that it is applicable during interstate sales. Since it is payable in the state where a particular product is sold, there’s no input or output CST.
It is a major source of income for the Government as is crucial in Indian interstate trade and commerce.
- Service Tax
It is an indirect tax imposed only on services provided or to be provided. Service is an activity carried on by one person for another person for some money. Providing services can be assistance in any sort of work like services provided in a restaurant or assistance in any sort of professional work. Service Tax is compulsory if the turnover crosses 9 lakhs.
It is payable by the ones who consume the service given by the service provider.