The introduction of the products and Services Tax was one among the foremost significant and most fundamental changes within the Indian taxation system since Independence. Further, it brought an outsized sort of taxes under one umbrella and helped simplify the method of taxation. The GST effectively replaced the older versions of the Central and State taxes, that included the VAT, Excise and repair Tax. Since coming into effect in July 2017, the GST has revolutionised the Indian taxation system. Similarly, here’s a glance at the difference between GST and VAT, the advantages of GST, and the way the GST has transformed the method of taxation.
What’s Value Added Tax or VAT?
Value Added Tax, better referred to as VAT, is an tax that came into effect in April 2005. As an idea , the VAT replaced the sooner system of taxation referred to as nuisance tax . VAT came into practice during a bid to integrate and make one market within India for products and services. From June 2014, VAT became a norm within all states and union territories within the country, barring the Andaman and Lakshadweep islands. VAT applicability depends on the character of the merchandise , as since it’s a State tax, the laws regarding VAT applicability believe the State laws.
Disadvantages useful Added Tax
Leads to the cascading effect of tax
End-consumer finishes up paying more for the merchandise or service
Suppliers couldn’t claim an Input decrease for services under VAT
Hard to implement and compute thanks to differences in VAT rates within different states in India
Difficult to standardise as different states had different VAT laws
Goods and Services Tax
The Goods and Services Tax (GST) has consolidated a plethora of indirect taxes levied by the Centre and states into a common tax. It eradicated multiplicity of taxes thereby reducing the complexity and removing the cascading effect of taxes. Present taxes levied on the sale of goods or services by either Central or State Government are embraced under the GST regime.
Goods and Services Tax came into effect on July 1, 2017. Businesses are required to file monthly, quarterly and annual returns and those with turnover exceeding INR 2 crore will also have to file audit reports.
Impact of GST
The disadvantages brought on by VAT applicability led to the formation and inception of the products and Services Tax. The GST may be a comprehensive, extensive and easy taxation system that unifies the state . Moreover, GST is additionally a destination-based concept of taxation that eliminates the cascading effect, resulting in better prices for consumers and suppliers. Additionally, the GST had a huge impact on the Indian economy because it removed several of the disadvantages and limitations brought on by VAT applicability.
Benefits of GST
Eliminates the cascading effect of taxation
Further, simple and easy process
Easier accessibility because the entire process is online
Lesser compliance norms and procedures
Additionally, the defined and clear treatment of e-commerce companies
Unified laws throughout the country
Easier to implement, monitor, and check for compliance
GST and Cascading Effect
One of the most important benefits of GST is that it removed the concept of cascading taxes. The cascading effect of taxation is that the process by which a tax is levied on top of another tax levied on a product or service. thanks to taxation at every step of the sale, certain times, products get taxed on their taxed values, resulting in consumers and suppliers having to pay quite what’s truly required. In such cases, tax is processed on a worth that has tax paid by the previous consumer, resulting in double taxation. Hence, the top consumer has got to pay tax on paid tax, called the cascading effect. However, since the inception of the products and Services Tax, such effects are eliminated.
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