VAT CST Registration in India

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VAT CST Registration in India

India has a complex sales tax framework which is levied at both the state and central level. Sales tax for goods sold within state is taxed as Value Added Tad (VAT) and inter-state sale of goods is charged Central Sales Tax (CST). With VAT/CST being applicable for the sale of goods or transfer of property for valuable consideration, it is important for businesses to know about the VAT/CST regime applicable to them and comply with the regulations. In this article we look at the basics of VAT CST Registration in India and the relevant rules and regulations:

Value Added Tax (VAT)

VAT is a multi-point destination based system of taxation, where the tax is levied on value addition at each stage of the production / distribution chain and the ultimate VAT tax is borne by the consumer. VAT tax allows for the provisioning of “Input tax credit” on tax at earlier stages, which can be used to setoff VAT liability on subsequent sale. Therefore, the VAT liability is calculated by deducting all the Input Tax Credit (VAT tax paid) by the entity from the total amount of VAT collected from the sales of goods by that entity.
VAT tax at the State level is determined by the Empowered Committee of State Finance Ministers. In most states VAT is generally exempt or charged at 4% or 12.5% or higher based on the nature of goods sold and the state in which the transaction takes place. Goods of basic needs like animal feed, firewood, fresh milk, vegetables, unprocessed meat, unbranded salt, etc., have been exempt from the VAT regime in most state. VAT is charged at 4 or 5 percent for categories of goods like chemical fertilizers, drugs and medicines, iron/steel, IT products, sports goods, etc., Further, VAT is charged at 12.5% for goods like cosmetics, furniture, vehicles, watches, etc., As VAT tax is state specific it is important to know about the state specific VAT regulation in which the business has its primary place of operation.

VAT Registration (TIN Registration)

Based on the state in which the business or person conducts his/her primary sale of goods, VAT registration would be required when the sale of taxable goods exceeds a certain threshold. The registration threshold varies by state and mostly VAT registration is required when a business sells goods in excess of Rs.5 lakhs per annum in many states. However, when a person/entity brings goods from outside the state for sale in the state or effects interstate sales, VAT registration becomes mandatory irrespective of value of the transaction. For identification/ registration of assesses under VAT, the Tax Payer’s Identification Number (TIN) is used. TIN consists of 11 digit numerals throughout the country. Its first two characters represent the State Code and the set-up of the next nine characters can vary in different States.

Central Sales Tax (CST)

CST is an indirect tax imposed on goods sold from one state to another state, governed by Central Sales Tax Act, 1956. Unlike VAT or Service Tax there is no threshold of turnover for which registration is made compulsory. CST becomes compulsory once an entity makes an inter-state sale. Further, even though the central sales tax has been framed by the Central Government, each State Governments is allowed alterations to the CST framework as deemed fit. In addition, the tax levied under this act by the Central Government is collected and used by that State Government from where the goods were sold.
Under to CST Act, a sale or purchase of goods shall have deemed to have taken place in occasions where there is movement of goods from one state to another; or the sale is effected by transfer of documents of title to goods during their movement from one state to another. Hence, CST shall be levied and collected by the State Government where the movement of goods have commenced. The rate of central sales tax is 4 % or state CST rate, whichever is lower. If the goods are sold to an entity registered under VAT/CST Regime, subsequent sales during the movement of same goods will be exempted from tax. But, if any of the entity in these subsequent sales is an unregistered entity, then the last registered entity will collect CST @ 10% from an unregistered entity to whom goods have been sold.

CST Registration

In most states, a single Tax Payers Identification Number (TIN Number) is used as registration for both local VAT and CST. In a few states however, there still exists dual registration for VAT and CST. Every person or entity undertaking inter-state sale is liable to be registered for CST or is subject to a penalty of imprisonment of upto six months or fine or both. Even in case an entity or person does not undertake inter-state sales, voluntary CST registration is recommended as an unregistered entity has to pay a CST of 10% on goods purchased, whereas an entity or person registered for CST would pay only 4% taxes on goods purchased. As the VAT & CST tax regime is complex and unique for each state, it is recommended that you talk to a tax expert or an IndiaFilings Business Expert to know more about the taxes applicable for your business.
To obtain VAT CST (Sales Tax) Registration in India, visit IndiaFilings.com

Comments (6)

kuldeep

Sep 13, 2014 at 12:52 PM

dear
here i want to ask you a question about the business. currently i want to go for the LLP resgistraion for my firm but after getting registration from the LLP do i also have to go for the VAT & CST REGISTRATION
plz give me the direction for this thing

Regards

Kuldeep

Reply

IndiaFilings

Sep 14, 2014 at 4:13 AM

Please send you details to [email protected] and our Business Advisors will call to help you.

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viraj karande

Nov 24, 2015 at 1:59 PM

i want to be a seller on flipkart. i want to start a small business. I dont have tin and vat. how to get it and is it necessary for small home business

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Jaya Sarkar

Feb 25, 2016 at 9:16 PM

Can two tin number be issued to a Single Firm of Same State

Reply

IndiaFilings

Feb 26, 2016 at 12:27 PM

No, Jaya. That is not possible.

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