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VAT structure in States
K. Rajaraman
Commissioner of Commercial taxes
Government of TN
Www.tnvat.gov.in
Sales Tax - Introduction
 Sales tax was levied on sale of goods only.
 After 46th Constitutional amendment, works
contract, hire purchase, leasing etc have also been
brought to the net of sales tax.
 Levy of ST/VAT is a major source of revenue to the
States. 60-70% of SOTR
 Local sales tax was levied under the respective State
General Sales Tax law.
 Initial multi-point levy of sales tax was later
converted into single point levy.
Central Sales Tax - Introduction
 To levy tax on inter-State sales and to regulate other
inter-State transactions, the Parliament enacted the
Central Sales Tax(CST) Act in 1956.
 CST is an origin based levy to be levied on inter-State
sales only by the origin State.
 CST is levied at 2% and collected by the origin State
and retained by it.
 CST Act exempts:
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Interstate transfers (other than sale)
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Movement in course of exports or imports
Introduction to VAT
 Single point sale tax levy was cascading and there
were multiple rates widely different from State to
State.
 There were also different kinds of industrial
incentives in the form of deferral and waiver of sales
tax.
 The above factors made business inefficient and
distorted business decisions.
 To remove the above deficiencies, VAT system of levy
was introduced in States from 2005, in tune with
global tax practice.
Liability and Taxable Events under VAT
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Under the VAT laws, the liability for payment of VAT lies with the
seller, however, the seller can recover VAT from the buyer.
VAT is leviable on sale of all moveable goods other than
newspapers, actionable claims, stocks, shares and securities.
Purchase tax leviable when purchases made from unregistered
dealers or when goods transferred out of tax has not suffered tax
Taxable Event
Sale /purchase of
goods
Works Contract
Lease of moveable
goods
Intangible Goods
VAT rates
 Socially
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important goods like agriculture inputs, unprocessed
agriculture products, textiles, etc., are exempt
Precious Metals and precious stones are liable to a special VAT rate of
1%
Concessional rate category of 5% for basic necessities (such as
medicines and drugs), agricultural produce, information technology,
industrial inputs, capital goods and declared goods
Goods which are not covered under any other category are taxable at
14.5% under the residual category.
Floor rate of 20% was fixed for non-VAT goods like Liquor, tobacco and
petroleum products and are liable for single point levy without ITC
Exports are been zero rated.
Inter State transactions : CST Act
 Interstate B2B sales are taxed at 2% on production of
documents defined under CST Act
 Interstate B2C sales are treated as local sale and taxed at
applicable VAT rates
 Interstate Stock transfers & movement in course of exports
are exempt subject to production of documentation defined
under CST Act
Input Tax Credit
• Input Tax Credit (ITC) is the credit of tax paid on input goods
and capital goods.
• Adjustment of ITC is allowed against VAT paid on intra-state
sales and CST on inter-state sales.
• A debit of 3% from ITC is applicable on interstate stock
transfers
• ITC from capital goods used for manufacturing of taxable
goods can be adjusted over a 3 year period
• State VAT Acts generally provide a negative list of goods on
which ITC is not available, such as automobiles (including
commercial vehicles), personal use items, fuels, etc.
Reforms in Tax Administration
 Along with VAT, simultaneous reforms have been
introduced in tax administration by way of
organizational reforms to make it more business
friendly.
 A 24x7 Call center /Help Desk for taxpayers and
officers is fully operational
 Services of e-filing of return, e-payment of tax, egeneration of declarations and delivery notes
functional since 2010.
 LTU/FTAC for large tax payers functional in
Chennai/Coimbatore. Plans to expand
Reforms in Tax Administration
 Deemed assessment procedure is followed since
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2011.
Advance Ruling Committee functional
Sales of input goods used in manufacture of goods to
be exported by SEZ manufacturing units are treated
as exports and zero rated.
Any other sales made to authorized operations of
SEZ units are exempt from levy of tax.
Inter-Sales made to SEZ units are exempt.
Tax Litigation Policy likely to be put in place.
e-Governance
 A state of art VAT workflow system ready to go LIVE shortly
(TCS is tech partner) with completely Online:
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Registration
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Returns
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Revision of assessment process
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Payments and refunds
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Appeals
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Transportation forms
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Statutory Interstate transaction documents
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DSC option for paperless transactions
Thank you !
cct@ctd.tn.gov.in