Difference between VAT and GST

Updated on June 28, 2022

Introduction

The concept of ‘one nation, one tax,’ popularised by the Goods and Services Tax (GST) in India, is now a reality.

Value added tax (VAT), service tax (ST), excise tax (EDT), and octroi (Octroi) have all been absorbed into GST. Each stage of the product’s value addition was hit with a different sort of indirect tax or VAT, and this had a cascading effect on the price.

Efforts to curb inflation were made possible by introducing the game of GST Selling or providing products is the basis for both of these taxes. But still, there are lots of differences between VAT and GST India.

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Singular Study to Understand the Difference Between VAT and GST

What is the VAT? Before it reaches the consumer, every item goes through a series of phases in the production and distribution process. In the distribution chain, value is added at every step of the production process. At each stage, Value Added Levy (VAT) is imposed as a tax on this value addition.

Taxes paid on purchases are retained by the retailer and the remainder is paid to the government by a VAT-registered dealer. Because it is paid for by the final consumer, the VAT is a consumption tax.

What is the GST? In India, the introduction of the Goods and Services Tax (GST) as a new indirect taxation league replaced nearly all other indirect taxes. This comprehensive, multi-stage, destination-based tax was enacted on July 1, 2017, and is levied on every value addition.

In the case of GST, the tax is collected at each and every stage of the transaction. CGST and SGST will be collected on interstate transactions, and Integrated GST will be charged on intrastate supplies.

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 ·       Different VAT rates in each state.

·       Different VAT laws for each state.

·       Uniformed tax rates across India

·       For States we have State GST Act (SGST), for centre we have Central GST Act (CGST) and for supplies made between the states we have Integrated GST Act (IGST) and for Union territories involved in a supply transaction, we have Union Territory GST Act (UGST).

Authority over taxes ·       Is a levy collected by respective state governments

·       Here the state government s have authority over the tax proceeds collected by such levy.

·       Whereas Goods and Service Tax is collected under SGST and CGST for every sale from the same state.

·       The corresponding centre and state amount then gets bifurcated.

Input Tax Credit ·       Taxpayers can claim the credit of tax by netting the VAT liability with input VAT on goods purchased and from output VAT on goods sold.

·       The corresponding centre and state amount then gets bifurcated.

·       GST is a tax levy on Goods and services as well. A taxpayer can claim the credit on supplies (Goods and Services) received by him to be used or intended to be used in furtherance of business operations.

·       Subsuming of taxes into one pot of GST has made available the usage of credits at one place to be used in the returns.

Compliances Movement of goods :

·       Different sets of compliances for the movement of goods between states.

·       Preparation of various forms for moving the goods from one state to other.

Returns :

·       Different returns in different states. So many annexures return to be prepared.

·       Concept of auto-populated return for inward supplies as in GST was absent under VAT law. Because there was no technology and ideology which is present today in GST act present back then.

Movement of goods :

·       Unified set of compliances for movement of goods between states

·       Preparation of one e-way bill which is valid across India.

Simplified Returns :
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 retur

 

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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, 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 the 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 the case of inter-state sales, Integrated GST  will be levied and in case of intrastate supplies, CGST and SGST will be charged.

What is the Main Difference Between VAT and GST

The main differences between VAT and GST could be understood from the following table

Are VAT and GST the Same?

Even though many famous economists claim that VAT and GST are simply two names for the same tax, a closer look reveals a significant difference. Let’s look at an example to see if VAT and GST are truly interchangeable.

A pen’s manufacturing cost is Rs. 2,727/-; the manufacturer’s profit margin is 10%, or Rs. 273 (value added by the manufacturer), at the time of sale. 12.5 percent excise duty = Rs. 375/-; 14.5 percent VAT = Rs. 375/- for the product

Let’s use the following data to arrive at the GST vs. VAT computation in order to better comprehend the difference between VAT and GST.

 

are vat and gst the same

Watch Video Explanation on GST vs. VAT

VAT

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