TN VAT: A Complete Guide to VAT in Tamil Nadu

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Value-Added Tax (VAT) is levied at each stage of production and distribution of goods and commodities. VAT works as a chain system, wherein, at each stage, the seller collects taxes from the buyer, and in turn, pays it to the government treasury, each year. VAT is a tax that is in control of the state governments and each State has their own Act and policies regarding the collection of VAT.

VAT in Tamil Nadu

VAT was introduced in Tamil Nadu in 2007. Since then, there have been considerable changes made, including online payment, which makes it easier for the traders to pay their dues in time.

TN VAT: Who is Liable to Pay VAT?

Section 3 of the TNVAT Act states that tax will be levied upon:
1. Every dealer, trader or business that deals with (purchases and sells) goods within the state;
2. All businesses with an annual turnover exceeding or equal to Rs. 10 lakh;
3. All businesses selling goods or conducting trade with other states;
4. All businesses registered outside the state.

However, VAT registration for traders, dealers, brokers and shopkeepers is required when their annual turnover exceeds or equals Rs. 5 lakh.

Determining Tax Liability

VAT is a multi-point system where the tax recovered on local purchases from the registered dealer can be set off against the tax payable on the sale of goods. The liability here is determined using the multiplication method.
The method works in the following manner: the taxable turnover of a dealer for a particular period is multiplied by the rate of tax applicable to that turnover. This is referred to as the Input Tax Credit method.

Rates of Applicable Tax Under VAT

The TN VAT rates are in the order of:
(i) 1% such as bullion, noble metals, precious stones, worn-out jewelry, etc.
(ii) 4% for acids and chemicals of all kinds, agricultural implements, bamboo etc.
(iii) 12.5% for all goods other than those that are exempted in 4th Schedule and those specified in 2nd Schedule and Part A and Part B of the 1st Schedule.

However, there are special rates earmarked for certain goods, such petrol, which are outside the ambit of VAT. For these goods, one cannot avail the input tax credit.

Who is a Dealer?

The Tamil Nadu VAT Act defines a dealer as a person who purchases, sells, supplies or distributes the goods in the course of his business for valuable consideration. They include any local authority, a company, casual trader, any person who effects the transfer of property in goods other than by way of sale, hotels, restaurants, customs department, insurance company, corporation or companies of the state and central governments, etc.

Who Needs a TN VAT Registration?

There are principally four categories of dealers who are to obtain registration from the Head of the Assessment Circle in whose jurisdiction the dealer’s principal place of business is situated.

Dealers with a total turnover in respect of purchase and sales is not less than Rs. 10 lakh in a year must collect taxes on all sales. Dealers with a total turnover of not less than Rs. 5 lakh, registrations are mandatory.

Lastly, those dealers who intend to commence business, non-resident dealers and dealers in jewelry (irrespective of turnover) shall also obtain registration.

Cost of VAT Registration

So far as registration fees are concerned, the principal place of business attracts a levy of Rs500 while every additional place of business will incur an expense of Rs50. However, expect to pay anywhere from Rs. 4000 to Rs. 8000 to an agent.

There is no need to pay a security deposit for dealers. The registration is also permanent, subject to cancellation by the department or on stoppage of business when reported by the dealer.

The Commercial Taxes Department also provides e-services that can be accessed at www.tnsalestax.gov.in. This procedure is distinct and separate from the procedures for registration under the Central Sales Tax Act, 1956.

Proof of Registration: TIN Number

Every dealer is allotted a registration number known as the TIN or the Taxpayer Identification Number. The TIN is an 11-digit number to be quoted in all VAT transactions and correspondence. The first two digits of the same indicate the state under which the VAT registration is done.

As per TN VAT, the allotment of the TIN extends also to those dealers who were registered with the erstwhile Tamil Nadu General Sales Tax Act, 1959, without charging any fee. However, such dealers will have to immediately file an application for obtaining registration under VAT.

Every company, including its branches within the state is to be assigned only one TIN and as for conglomerates, a separate TIN should be assigned to each separate legal entity.

Filing of VAT Returns in Tamil Nadu

There are separate forms to be filed on a monthly basis by general assessees and exclusive resellers. The said returns are to be filed on or before the 20th of every month for the transactions, which took place in the previous month along with proof for payment of tax due from the dealer.

According to the TNVAT regime, the dealers in the state are liable for assessment to tax only if the total turnover for the financial year exceeds the minimum threshold of Rs. 10 lakh, or as specified under the 2006 Act.

For those dealers whose turnover exceeds Rs 200 Crores in the previous year, the due date for filing the monthly returns in the relevant form is on or before the 12th of the succeeding month, with a proof of tax payment.
Late or submissions with defects will attract penalties and interest payments as per TNVAT law.

Mode of Tax Payment

Every dealer can choose to pay tax by remittance to a State Bank of India branch or any bank authorized by the government from time to time, or by remittance in cash into a government treasury, assessing authority. He can also avail of the facility of a crossed check in favor of the assessing authority or a crossed demand draft or banker’s check.

Online Payment of TN VAT

Let us look at the steps to file VAT through the online portal.
1. TN VAT can be paid through the portal https://ctd.tn.gov.in/home.

TN VAT

2. One needs to have registration details such as TIN number, to make the online payment.

3. Click on the link to the site, and click ‘e-payment’ on the home page. (If you have not registered for TN VAT, you can use the same portal to register online. Click ‘e-registration’ on the left hand side of the home page for the same.) Unregistered dealers are also given provision in the subsequent pages to file VAT returns. Click e-payment on the left hand panel of the home page to start with.

3. The page will ask you to select the type of tax you need to pay. Select ‘VAT’ and click Submit.

4. On the page that opens up, you need to enter the details such as the TIN number, address and payment details. Select the bank name, and opt for either offline or net banking payment modes, according to your convenience.

5. Click ‘Confirm’ once you have entered all details, and go on to pay the VAT online.

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A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.

5 COMMENTS

  1. Hello, my client in New Delhi intends to do business of fabricating aluminium windows for an apartment project in Chennai. The semi finished materials will be supplied from their branch/associate in Bangalore and the finishing will be done at the buyers site. Their client (the buyer) requires the billing to be done from Chennai.
    How do we go about this transaction.
    H Vijay Bhaskar

    • Does your client have a registered office in Chennai? If not, how will billing be done there? Most likely, CST will need to be charged on the entire transaction under Form C. In the absence of Form C, the CST rate will equal the state VAT rate of the seller.

  2. If i am selling good within Chennai to the party who is going to use the same in manufacturing the product which will be exported. Am i eligible for the VAT exemption ?

  3. Hello,

    I have ITC of 260000 but for the last 5 months it has not been reflecting on our portal so we have not been paying as we can’t afford to pay this out of pocket. We have not been paying vat because of this. the vat officers say it is a system error just make do out of pocket. what do i do?

  4. We are a systems integrator dealing in the business of sales and service of computer hardware like desktops, laptops, printers and servers etc . We have customers like Chartered Accountant firms , software solution providers etc to name a few who do not have a TIN number. Is it in order for us to raise invoices and charge VAT and despatch goods without fear of seizure of good en route to delivery as our invoices will not be carrying the buyers’ TIN number as they have none ?!

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