VAT/ CST - Overview
Value Added Tax (VAT)
VAT is a destination-based multi-point taxing system. Value addition will be taxed
at each stage of the production or distribution chain. Following that, the VAT tax
is borne by the consumer. The VAT tax enables for the creation of a “Input tax
credit” (ITC) at a later stage. As a result, it can be used to offset VAT duty on
future sales. As a result, the deduction of all ITCs is included in the computation
of VAT liability. It refers to the entire amount of VAT tax paid on goods or
services sold.
VAT Registration (TIN Registration)
Companies based on the state and principal sale of goods are required to register
for VAT. VAT registration should be made mandatory for all sales of items above the
threshold. The threshold for registration varies by state. If the firm sells items
worth more than Rs.5 lakh within the state, it must register for VAT. However,
regardless of the transaction value, the entity must register for VAT when selling
items from other jurisdictions. The Tax Identification Number (TIN) will be used to
identify or register assesses under VAT. The TIN is made up of 11 digits and is used
all over the country. The first two digits reflect the State Code, while the next
nine characters can differ depending on the state.
Central Sales Tax (CST)
Goods sold from one state to another are subject to the CST. The Central Sales Tax Act
of 1956 governs it as an indirect tax. Once an entity engages in interstate commerce,
CST becomes mandatory. As a result, all enterprises engaged in interstate commerce must
register with CST. Once an entity conducts an interstate sale, CST becomes mandatory.
Furthermore, the tax levied by the Central Government under this legislation is
collected and utilised by the State Government where the products were sold.
CST Registration
In most states, a single Taxpayers Identification Number (TIN) is utilised for both
local VAT and CST registration. However, dual registration for VAT and CST still exists
in a few states. Every person or entity engaging in interstate commerce must register
for CST or face a penalty of up to six months in prison, a fine, or both. Even if an
entity or person does not sell goods over state lines, voluntary CST registration is
advised since an unregistered entity must pay a CST of 10% on goods purchased, but an
entity or person who is registered for CST pays only 4%.