IndiaFilings » Learn » VAT and CST Registration in India

VAT and CST Registration in India


VAT and CST Registration in India

VAT and CST registration apply to all companies providing goods and/or services in India. The Value Added Tax (VAT) applies to goods or services provided within the state. Any goods or services provided between the state is Central Sales Tax (CST). As VAT and CST applies for the sale of goods or transfer of property businesses shall comply with the regulations. This article elaborates on the rules and regulations of VAT and CST Registration in India.

Value Added Tax (VAT)

VAT is a multi-point destination taxation based system. The tax shall levy on value addition at each stage of the production or distribution chain. Forthwith the consumer bears the VAT tax. VAT tax allows provision for “Input tax credit” (ITC) at earlier stages. Hence, it can be used to set off VAT liability on subsequent sale. As a result, the calculation of VAT liability includes the deduction of all the ITC. It applies to the total amount of VAT tax paid on the sale of goods or services.

The Ministers of the State determines the VAT tax for goods and services. In most of the states, VAT charges are generally exempted. However, some goods are charged at 4%, 12.5% or higher based on the State. Goods such as animal feed, milk, vegetables, unprocessed meat, unbranded salt, etc., are exempted from VAT. 4 or 5% of VAT applies to chemical fertilizers, drugs and medicines, iron/steel and sports goods. Further, 12.5% of VAT applies to cosmetics, furniture, vehicles, watches, etc., As VAT tax may differ for each state entities shall know about VAT regulation in the place of operation.

VAT Registration (TIN Registration)

Registration of VAT applies to companies based on the state and primary sale of goods. Upon the sale of goods beyond the threshold, the VAT registration should be made compulsory. The registration threshold differs as per the state. If the entity makes the sale of goods beyond Rs.5 lakh within the state, the entity shall register VAT. However, the entity should register for VAT upon the sale of goods from other states irrespective of the value of the transaction. For the identification or registration of assesses under VAT, Tax Identification Number (TIN) shall be 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 applies to goods sold from one state to another state. It acts as an indirect tax and governed by Central Sales Tax Act, 1956. CST becomes compulsory once an entity makes an inter-state trade. Hence all the companies involved in inter-state trade shall register for CST. 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