Sales Tax/VAT Returns

Small dealers with gross annual turnover not exceeding the threshold limit will not be liable to pay VAT. States will have flexibility to fix threshold limit within 10 lakh. Small dealers with annual gross turnover not exceeding 25 lakh who are otherwise liable to pay VAT, shall however have the option for a composition.

Scheme with payment of tax at a small percentage of gross turnover. The dealers opting for this composition scheme will not be entitled to input tax credit.

The objective of all such composition schemes is not to burden small dealers by the provisions of record keeping. Therefore, such schemes will generally contain the following features:

  • Small amount of tax shall be payable;
  • there shall be no requirement to calculate taxable turnover;
  • a simple return form to cover longer return period shall be sufficient.

Every return so furnished is required to be scrutinized expeditiously within the prescribed time limit from the date of filing the return. If any technical mistake is detected on scrutinizing, the dealer shall be required to rectify the defect or pay the deficit respectively.

The return filing procedures are designed in such a way that the compliance costs are minimum. A registered dealer shall be required to file a return along with the requisite details such as output tax liability, value of input tax credit, payment of VAT.


Four Types of VAT Rates: As contrasted to the multiplicity of rates under the existing regime, VAT will have 4 broad rates.

  • 0% (Exempted) for unprocessed agricultural goods, and goods of social importance), 1% for precious and semiprecious metals,
  • 4% for inputs used for manufacturing and on declared goods, capital goods and other essential items,
  • 20% for demerit/luxury goods and
  • the rest of the commodities will be taxed at a Revenue Neutral Rate of 12.5%. CREDIT.

VAT can be computed by using any of the three methods detailed below:

  • The Subtraction method: Under this method the tax rate is applied to the difference between the value of output and the cost of input
  • The Addition method: Under this method value added is computed by adding all the payments that are payable to the factors of production (viz., wages, salaries, interest payments, etc.)
  • Tax Credit method: under this method, it entails set-off of the tax paid on inputs from tax collected on sales. Indian states opted for tax credit method, which is similar to Cenvat
  • Audit is one of the four important pillars of vat administration, the other three being registration, returns and refunds. The word 'audit' encompasses both the functionalities of inspection and assessment. In the context of self-assessment system under vat, the function of audit acquires paramount importance. The main objective of audit for bridging the gap between the tax due and the tax declared by the dealers. In many of the state audit of accounts by Accountant or other specified person is mandatory if the turnover exceeds the specified limit in a year.
  • The Company Secretary has to see the returns to be filed before VAT authorities are made in prescribed rules. He should also consider the procedural aspects regarding payment of VAT and related assessment proceedings. Every state has its own peculiarities regarding the documents to be filed before the VAT authorities in connection with filing of return and other related issues.