What is the full form of VAT:

VAT represents Value Added Tax.

It is a sales tax which is now modernized and is progressive. It is a tax which is charged by the dealers or manufacturers and it needs to be paid by the customers. VAT was introduced on 1st of April 2005 by the Government of India. The sales tax which was present before 2005 was replaced by this new tax naming Value Added Tax. This tax is now applicable in all the states of our country. There are more than 130 countries all over the world who apply this tax.

There are many benefits of VAT as mentioned by the government of India. They are: It is a business friendly taxation system. It is a transparent and a very progressive tax. After the introduction of VAT, there is a huge reduction in the effective tax which needs to be paid on many goods. Due to VAT, the tax on tax system has been eliminated. VAT has made the tax procedure simple. Vat needs to be applied on all the businesses which include Manufacturing, Distribution, Import, Export, Wholesale, retail, contractors, etc.

VAT needs to be charged on all the manufacture and production. It is charged to all registered dealer. These dealers collect this tax from the customers who buy their products. The dealers provide a tax invoice to the customers to show the amount of VAT which is been charged to them. The registered dealers need to maintain a proper process for VAT. They need to charge the VAT on all their sales also they need to collect it properly. They need to maintain a proper tax invoice with correct records and book of accounts. They need to calculate the TAX as per the charges set by the government. VAT returns needs to be filed in every financial year.

There are two VAT rates: First is 4%, which is charged on the raw materials which are used at the time of manufacture. Second one is 12.5% which is applied for all the goods like food, pulses, vegetables, milk, books etc.