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TN VAT: A Complete Guide To VAT In Tamil Nadu

Tamil Nadu Value Added Tax Act, 2006 governs Value Added Tax (VAT). It imposes taxes on sales of goods in Tamil Nadu based on their value added at every stage of the sale and on purchases of certain goods in Tamil Nadu in special circumstances.

Introduction

VAT, or Value Added Tax, was introduced in Tamil Nadu in 2007, replacing the old sales and commercial tax regimes. The need for this replacement was not just in India but all across the world due to a commonly occurring phenomenon called the ‘cascading effect.‘ Before VAT, sales tax was charged flatly at every stage of processing finished goods. If a manufacturer bought raw materials, then sales tax was calculated on the MRP of the raw materials. And when the manufacturer processes the raw materials into a finished product and sells it forward, they will charge sales tax on the selling price of the product. But there was a slight oversight in this system. The goods’ pricing is based on the cost of goods plus manufacturing goods plus profit markup. But the cost of goods includes the sales tax paid on the purchase. So when the manufacturer sells the goods and charges sales tax on the price, there is a tax on the sales tax already paid by the manufacturer to the raw material supplier. This is considered inflated or double taxation, also known as the cascading effect.

So Value Added Tax was brought in to address this issue. Under the VAT system of taxation, tax is charged at every step of the sale of goods but only on the value added at that particular step to the product and not on the entire MRP. This is done by creating a set of systems. Let us take a look at how VAT works.

How Does It Work?

Let us say A is a manufacturer. He purchases raw materials from B at ₹ 100 per unit. He then processes the raw materials into a finished product. He then sells the goods at ₹ 150 per unit. Now let us say the rate of taxation is 5%. So under the old sales tax regime, A will pay ₹ 5 as tax to the raw material supplier. And when he sells the goods, he will charge 5% sales tax on ₹ 150, which amounts to ₹ 7.50. So the total amount of tax paid to the government is ₹ 12.50

Under the VAT system, when A pays ₹ 5 as tax to the raw material supplier, this amount is credited to his VAT account. And when he sells the goods, ₹ 7.50 will be debited to his account, thus setting off the two amounts against each other, and A pays only ₹ 2.50 as VAT to the government. Therefore, the total amount of tax paid to the government on the transaction remains ₹7.50.

VAT Under GST

In 2017, the GST taxation system was rolled out to merge all indirect taxes, including VAT, under one roof. So as of the date of publication of this article, VAT doesn’t exist. Furthermore, GST has retained the credit system introduced with VAT. So for all practical purposes, the VAT mechanism of mitigating the cascading effect is an integral part of the new GST regime.

However, the significant difference between the two systems is that with VAT, the state governments had full authority to form the procedures and regulations for applying VAT, and the tax revenue was collected directly by the state government. Under the GST regime, however, the tax collection process has been centralised. GST is managed through one central portal, has uniformity of rates across India and the amount collected is reimbursed to the respective states at a later stage proportional to their contribution to the overall GST revenue. And while this may not seem like a problem on paper, there are specific practical difficulties under this system. The fact that the state governments have to wait for their tax revenues to be calculated and disbursed can cause cash flow problems for the state government in its hour of need, thus causing delays in regional developmental projects.

Keeping this in mind, three items were left out of the purview of GST. These are Petroleum and related products, Alcohol for human consumption and electricity. These three commodities are usually the highest contributor to state exchequer revenue. Since they are left out of the GST regime, the states can formulate policy and collect tax revenue from the sale of these commodities directly, thus avoiding a crippling cash crunch for state governments. These three commodities will be continued to be taxed as per the preceding regime, which is VAT.

Click here to learn about: GST Registration Process.

TN-VAT Rates

As mentioned before, state governments are free to fix the rate of taxation on various commodities. The rate of VAT for these remaining commodities is as follows.

Commodity Point of levy Rate
Alcoholic liquors of all kinds for human consumption which are purchased/ procured / brought from outside the state other than foreign liquors

First point of sale

Second point of sale

58%

14.5%

Foreign liquors, that is to say, wines, spirits and beers imported into India from foreign countries and dealt with under the Customs Tariff Act, 1975 (Central Act 51 of 1975) or under any other law for the time being in force relating to the duties of customs on goods imported into India.

First point of sale

Second point of sale

58%

14.5%

Alcoholic liquors of all kinds for human consumption other than liquors falling the above two categories (Purchase / procured / brought within the State)

First point of sale

Second point of sale

58%

220%

Petrol with or without additives. At the point of first sale 27%

High Speed Diesel Oil 

23.43

221.43

per cent

At the point of first sale 21.43%
Light Diesel Oil At the point of first sale 25%
Electricity At first point of sale 5%
Self generated electricity for non-commercial consumption N/A 10 paise per unit consumed

TNVAT Registration

  1. Access to Tamil Nadu Commercial Taxes Department Portal https://ctd.tn.gov.in
  2. Click on e-Services Link on the Left Side of the Portal
  3. Now click on the “New User? Signup” link.
  4. Select the user Type
  5. Enter TIN for already existing dealers
  6. Enter e-Mail, First Name, Last Name, Mobile No and PAN
  7. E-Mail ID, Mobile No and PAN should be unique; the portal won’t allow signup if any of these are already used.
  8. After the e-Mail ID is successfully verified, a system-generated Password will be sent to the applicant’s e-Mail ID.
  9. Login using the credentials received through mail id/ Mobile number.
  10. Click on e-Registration and select the Tax type from the dropdown for which you want to get registered. (VAT)
  11. Two approaches are available, excel and web forms.
  12. Choose either web forms or excel.
  13. Fill in all the mandatory details in the registration application using the Permanent account number (PAN).
  14. On applying, the system will ask for payments of registration fees.
  15. Click on E-payment and select payment type as registration fees. (₹1000/-)
  16. Do the payment through Net-banking or e-challan.
  17. Click on the upload document link and upload necessary scanned documents like
  • Address proof (2)
  • Photo ID proof(2)
  • Passport size photo
  • Signature
  • Reference letter
  • Proof of PRPL
  1. Submit a hard copy of the application to the respective circle for all applications without Digital Signature.
  2. If the application is Digitally signed, it is optional to submit the hard copies to the respective circle.
  3. On approval of the application, TIN / VAT will be generated. Registration Certificates shall be sent online (with a digital signature) and can be viewed/downloaded from the portal.

VAT Payment

VAT can be paid through both online and offline facilities. Pay offline by remittance to a State Bank of India branch or any bank authorised by the government from time to time or by remittance in cash into a government treasury, assessing authority. He can also avail of a crossed check in favour of the assessing authority or a crossed demand draft or banker’s check.

VAT can also be paid online. Let us take a look at the steps required to pay VAT online:

  1. TN VAT can be paid through the portal https://ctd.tn.gov.in/home.
  2. To make the online payment, one must have registration details, such as a TIN number.
  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 provisions to file VAT returns on subsequent pages. Click e-payment on the left-hand panel of the home page to start with.
  4. The page will ask you to select the type of tax you need to pay. Select ‘VAT’ and click Submit.
  5. On the page that opens up, you need to enter the details such as the TIN, address and payment details. Select the bank name, and opt for either offline or net banking payment modes, according to your convenience.
  6. Click ‘Confirm’ once you have entered all details, and go on to pay the VAT online.

VAT Return Filing

There are separate forms to be filed monthly 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 of payment of tax due from the dealer.

According to the TN VAT 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 ₹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 proof of tax payment. Late submissions with defects will attract penalties and interest payments as per TNVAT law.

Conclusion

Taxation and the procedures relating to them are quite complicated. It requires someone with considerable expertise and hands-on experience. And given that tax registrations are a one-time procedure, business owners do not try to understand the process in depth. This is why it is best to engage a professional or an expert who knows all the requirements and nuances of these registration processes. If you have any queries regarding tax registrations or need assistance concerning tax applications, get in touch with us, and we will ensure you receive the best possible.

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