What is the Difference Between VAT & CST?

Last Updated at: October 18, 2019
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Business owners are often confused about VAT and CST schemes. A clear insight into the various taxation schemes helps trade owner to choose the right taxation scheme for their business. Know about the difference between VAT and CST schemes and this can help to avail the taxation benefits.

As a manufacturer or trader, you may be wondering what the difference is between Value Added Tax (VAT) and Central Sales Tax (CST), and when to charge which tax. The answer is, in fact, pretty simple. Simply put, VAT is to be levied on intra-state trade while CST is to be levied on inter-state trade. In most other respects, both are the same, being types of indirect taxations that govern the tax liability of manufacturers and dealers in India. However, let us dig deeper into their differences to better understand both concepts.

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Definition

VAT: Value-added tax or VAT is an indirect tax levied at various stages of production. It is an indirect tax because it is paid by vendors from the amount collected from their customers; therefore, the customers are indirectly paying the tax. In India, VAT rates are different for most products, and even differ from one state to the next. Typically, all goods fall within four or more schedules, which have a VAT rate of anywhere from 1% to 15%. Dealers or manufacturers must apply for a VAT registration the moment their turnover hits Rs. 5 lakh per year (this amount also differs from one state to the next).

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CST: CST, or Central Excise Tax, is an indirect tax levied on interstate sales. CST is not levied at every stage of production, and not even on the sale of the goods if they are sold in the same state. Only when a manufacturer decides to take the goods to another state does CST need to be levied. You can apply for a CST Registration at a cost of just Rs. 25 when applying for a VAT Registration.

Applicability

VAT: VAT is applicable on imported goods as well as those manufactured within the country. While the rate may differ from one type of item to the next, the rate will be the same whether imported or domestically produced.

CST: As with VAT, CST is is also levied on both imported goods as well as those produced within the country at the same rate.

Payment & Returns

VAT: VAT Registrants must pay the taxes they collect from customers, less what they have paid to vendors (if any), by a certain date of every month to government. An account of these payments must be given to the Commercial Taxes Department by a particular date (either monthly or quarterly, depending on the state).

CST: CST must also be paid to government along with VAT and an account be given to the state Commercial Taxes Department by the same date.

Exemptions

VAT: VAT does not provide general and specific concessions on any goods or produce; however, there are a few goods (differing from state to state) on which no VAT is levied (such as agricultural implements). VAT however, gives full credit on taxes that are already paid.

CST: The Central Sales Tax Act, 1956 gives general as well as specific exemptions on certain goods. CST also gives concessional rates.

The above article gives useful information on the popular taxation scheme VAT and CST. You can also understand the differences and exemptions of the above taxation schemes. Choosing the right taxation scheme can help in improving your business and increase your profit.

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