Difference between VAT and GST
Goods and Service Tax India is a reality today and it has brought the Indian taxation system under its unique ideology ‘one nation, one tax’.
The rise of GST has subsumed all the indirect taxes in India, including Value Added Tax (VAT), Service tax, Excise duty, and Octroi. These various forms of indirect taxes and VAT were levied on each step of value addition of the product, thus creating a cascading effect.
The game of GST was introduced to bring down unwanted inflation in the economy. Both these taxes are levied on the value of sale or supply of goods. But still, there are lots of differences between VAT and GST India.
2. Singular Study to Understand the Difference Between VAT and GST
- What is VAT ? Every commodity passes through different stages of production and distribution before finally reaching the consumer. At each stage of the production, a value addition is made in the distribution chain. And Value Added Tax (VAT) is a tax on this value addition at each stage.
A dealer under VAT collects tax on his sales, retains the tax paid on his purchase and pays the balance to the government. Value Added Tax is a consumption based tax, because it is borne ultimately by the final consumer.
- What is GST? Goods and Service Tax which was introduced as a new league in indirect taxation system replaced all most all Indirect Taxes in India. The act which came into effect on 1 st July 2017 is a comprehensive, multi stage, destination based tax that is levied on every value addition.
Under GST, the tax is levied at every point of sale. In case of inter-state sales, Integrated GST will be levied and in case of intra state supplies, CGST and SGST will be charged.
3. What is the Main Difference Between VAT and GST
The main differences between VAT and GST could be understood from the following table
|Point of difference||Scenario under VAT law||Scenario under GST Law|
|Taxable Event||Is on sale of goods||Is on every supply and supply includes goods and services.|
|Rates of Taxes and Laws in each state||
|Authority over taxes||
|Input Tax Credit||
|Compliances||Movement of goods :
||Movement of goods :
Only three monthly returns. One for outward supply (GSTR1), other for inward supply (GSTR2) (Note : This return is an auto populated one. This provision was not there under VAT act) and the last return is a consolidated return. (GSTR3)
4. Are VAT and GST the Same ?
Though going by the words of many eminent economists, VAT and GST are just two names for one tax, but on evaluating minutely, one observes the contrast clearly. Let us take an example and arrive at a conclusion whether VAT and GST are really same.
Ex : Manufactured cost of a pen = Rs. 2,727/- ; Margin added by manufacturer at time of sale = 10% = Rs. 273 (value addition by manufacturer) ; Excise duty leviable on the product @ 12.5% = Rs. 375/- ; VAT levied by State authority @ 14.5 % on ?
Let us now compute using the following information at hand and arrive the GST vs. VAT calculation to understand the difference between VAT and GST