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More About Sales Tax
India does not have a classic Value-Added Tax (VAT) structure. Instead, separate tax on sale of goods and on rendering of services is imposed under different legislations. Sale and purchase of goods is subjected to charge of sales tax. Sales tax is levied under Central and State Sales Tax legislations depending upon the movement of goods in pursuance of a sale transaction. If the transaction involves movement of goods from one state to another (inter-state), the tax is levied under Tax Act (CST), 1956.
From 1 April 2005, 21 states of India have replaced local sales tax with VAT. The rest of the states are still continuing to impose sales tax. The VAT, as introduced by 21 states, is not much different from local sales tax regime except that it captures value addition at each level of distribution network. The State VAT, as introduced by the states, continues to be a tax on sale of goods and does not include taxation of services. The standard rate of VAT is 12.5 per cent and there is reduced rate of 4 per cent. Besides that, there are exemptions and rate of 1 per cent and 20 percent for specified products. In addition to sales tax, some states also levy additional tax / surcharge, turnover tax or entry tax. Sales tax / state VAT is payable by the seller to the government. Ordinarily, sales tax / state VAT is recovered from the buyer as a part of consideration for sale of goods.