Value Added Tax (VAT) Rates in India: Comprehensive Guide

Explore the Value Added Tax (VAT) system in India, its rates, types, and compliance requirements. Learn how VAT affects petroleum, alcohol, and electricity taxes.

VAT stands for Value Added Tax. It is an indirect tax levied on sale of goods and services. It was introduced in 2005 to replace Sales tax and was eventually replaced with Goods and Services Tax (GST) in 2017. Before we go into the specifics of VAT we need to understand how Sales Tax works in India.

The constitution of India has two lists when in the context of taxation: the Centre List and the State List. The Centre list consists of items that are the prerogative of the central government and any revenue collected from the taxing the commercialization of these items will be counted as revenue of the Centre which is to be used for the welfare and development of the country as a whole. Similarly, the State List consists of items that are the prerogative of the State and any revenue collected from taxing the commercial profits of these items is counted as that state’s revenue and is to be used for the welfare and development of that particular state.

In 2017, GST was introduced as a brand new tax regime abolishing separate taxes for separate business activities and bringing all indirect taxes under one umbrella. This move abolished the VAT system, although it functions on the tax credit system that was introduced with VAT.

The GST regime involves centralised collection of indirect taxes and redistribution of the taxes to the various states commensurate with their respective contributions. However, there are three items that have been excluded from the GST regime and the revenue earned from these items are collected and utilised by the respective state governments directly. These items are:

1. Petroleum and related products
2. Alcohol
3. Electricity.

These were excluded as these items generate the most amount of revenue for the exchequer of almost all states and although shifting these items under the GST regime is imminent, moving them immediately might cripple the cash flow of state governments given that the GST earned by the state in the form of GST is accrued with the tax authorities and remitted to the respective states periodically.

VAT Rates in India

VAT rates in India differ in every state and are based on the type of goods sold. Entrepreneurs must, therefore, be aware of regulations in all states they operate in. There is an Empowered Committee to ensure that there is no substantial difference between VAT rates from one state and another. As mentioned before, VAT is applicable only to three items: Petroleum products, Alcohol for human consumption and electricity. The rates are as follows:

Petroleum Products

The VAT rates on petroleum products in India vary significantly across different states and Union Territories (UTs). These variations reflect the unique tax policies and road development efforts in each region. Below is a detailed overview of the VAT rates applied to petrol and diesel in various states:

State/UT	Petrol	Diesel
Andaman & Nicobar Islands	6%	6%
Andhra Pradesh	31% VAT + Rs.4/litre VAT+Rs.1/litre Road Development Cess an d Vat thereon	22.25% VAT + Rs.4/litre VAT+Rs.1/litre Road Development Cess and Vat thereon
Arunachal Pradesh	20%	13%
Assam	32.66% or Rs.22.63 per litre whichever is higher as VAT minus Rebate of Rs.5 per Litre	23.66% or Rs.17.45 per litre whichever is higher as VAT minus Rebate of Rs.5 per Litre
Bihar	26% or Rs 16.65/Litre whichever is higher (30% Surcharge on VAT as irrecoverable tax)	19% or Rs 12.33/Litre whichever is higher (30% Surcharge on VAT as irrecoverable tax)
Chandigarh	Rs.10/KL cess +22.45% or Rs.12.58/Litre whichever is higher	Rs.10/KL cess + 14.02% or Rs.7.63/Litre whichever is higher
Chhattisgarh	25% VAT + Rs.2/litre VAT	25% VAT + Rs.1/litre VAT
Dadra and Nagar Haveli and Daman and Diu	20% VAT	20% VAT
Delhi	30% VAT	Rs.250/KL air ambience charges + 16.75% VAT
Goa	27% VAT + 0.5% Green cess	23% VAT + 0.5% Green cess
Gujarat	20.1% VAT+ 4% Cess on Town Rate & VAT	20.2% VAT + 4 % Cess on Town Rate & VAT
Haryana	25% or Rs.15.62/litre whichever is higher as VAT+5% additional tax on VAT	16.40% VAT or Rs.10.08/litre whichever is higher as VAT+5% additional tax on VAT
Himachal Pradesh	25% or Rs 15.50/Litre- whichever is higher	14% or Rs 9.00/Litre- whichever is higher
Jammu & Kashmir	24% MST+ Rs.5/Litre employment cess, Reduction of Rs.0.50/Litre	16% MST+ Rs.1.50/Litre employment cess
Jharkhand	22% on the sale price or Rs. 17.00 per litre , which ever is higher + Cess of Rs 1.00 per Ltr	22% on the sale price or Rs. 12.50 per litre , which ever is higher + Cess of Rs 1.00 per Ltr
Karnataka	35% sales tax	24% sales tax
Kerala	30.08% sales tax+ Rs.1/litre additional sales tax + 1% cess	22.76% sales tax+ Rs.1/litre additional sales tax + 1% cess
Ladakh	24% MST+ Rs.5/Litre employment cess, Reduction of Rs.2.5/Litre	16% MST+ Rs.1/Litre employment cess , Reduction of Rs.0.50/Litre
Lakshadweep	Nil	Nil
Madhya Pradesh	33 % VAT + Rs.4.5/litre VAT+1%Cess	23% VAT+ Rs.3/litre VAT+1% Cess
Maharashtra – Mumbai, Thane , Navi Mumbai,  Amravati & Aurangabad	26% VAT+ Rs.10.12/Litre additional tax	24% VAT+ Rs.3.00/Litre additional tax
Maharashtra (Rest of State)	25% VAT+ Rs.10.12/Litre additional tax	21% VAT+ Rs.3.00/Litre additional tax
Manipur	32% VAT	18% VAT
Meghalaya	20% or Rs15.00/Litre- whichever is higher (Rs.0.10/Litre pollution surcharge)	12% or Rs9.00/Litre- whichever is higher (Rs.0.10/Litre pollution surcharge)
Mizoram	25% VAT	14.5% VAT
Nagaland	25% VAT or Rs. 16.04/litre whichever is higher +5% surcharge + Rs.2.00/Litre as road maintenance cess	16.50% VAT or Rs. 10.51/litre whichever is higher +5% surcharge + Rs.2.00/Litre as road maintenance cess
Odisha	32% VAT	28% VAT
Puducherry	23% VAT	17.75% VAT
Punjab	Rs.2050/KL (cess)+ Rs.0.10 per Litre (Urban Transport Fund) + 0.25 per Litre (Special Infrastructure Development Fee)+24.79% VAT+10% additional tax on VAT	Rs.1050/KL (cess) + Rs.0.10 per Litre (Urban Transport Fund) +0.25 per Litre (Special Infrastructure Development Fee) + 15.94% VAT+10% additional tax on VAT
Rajasthan	36% VAT+Rs 1500/KL road development cess	26% VAT+ Rs.1750/KL road development cess
Sikkim	25.25% VAT+ Rs.3000/KL cess	14.75% VAT + Rs.2500/KL cess
Tamil Nadu	13% + Rs.11.52 per litre	11%  + Rs.9.62 per litre
Telangana	35.20% VAT	27% VAT
Tripura	25% VAT+ 3% Tripura Road Development Cess	16.50% VAT+ 3% Tripura Road Development Cess
Uttar Pradesh	26.80% or Rs 18.74/Litre whichever is higher	17.48% or Rs 10.41/Litre whichever is higher
Uttarakhand	25% or Rs 19 Per Ltr whichever is greater	17.48% or Rs Rs 10.41 Per Ltr whichever is greater
West Bengal	25% or Rs.13.12/litre whichever is higher as sales tax+ Rs.1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax)	17% or Rs.7.70/litre whichever is higher as sales tax + Rs 1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax)

Electricity

The tax and duty rates on electricity consumption vary across states. These rates are essential for understanding regional taxation policies, which affect both residential and commercial electricity consumers. Below is a detailed table showing applicable tax and duty rates for electricity in different states:

State	Tax Rate (applicable as percent of total bill amount)	Duty Rate (applied as Rs per unit of electricity consumed)
Andhra Pradesh	0	0.06
Arunachal Pradesh	N.A	N.A
Assam	0	0.09
Bihar	0	0.15
Chattisgarh	7	0.1
Goa	N.A	N.A
Gujarat	20	0
Gujarat-Torrent-Ahd	20	0
Gujarat-Torrent-Surat	20	0
Haryana	0	0.1
Himachal Pradesh	N.A	N.A
Jammu and Kashmir	N.A	N.A
Jharkhand	N.A	N.A
Karnataka	5	0
Kerala	7	0
Madhya Pradesh	0	0.63
Maharashtra	15	0
Mumbai-Reliance	15	0.15
Mumbai-Tata	15	0.15
Mumbai-BEST	15	0.15
Manipur	N.A	N.A
Meghalaya	N.A	N.A
Mizoram	N.A	N.A
Nagaland	N.A	N.A
National Capital Region	5	0
Odisha	N.A	N.A
Punjab	13	0.1
Rajasthan	0	0.4
Sikkim	N.A	N.A
Tamil Nadu	N.A	0.1
Tripura	6
Uttar Pradesh	5	0
Uttarakhand	0	0.15
West Bengal	N.A	N.A
Chandigarh	0	0.09
West Bengal-Kolkata-CESC	N.A	N.A

Alcohol

In most states Alcohol is taxed at the highest rate possible. Taxation on alcohol differ from state to state. The minimum VAT rate for Alcohol in India is at 20%. But some of the states have very high rates of taxation on alcohol as a measure to control the consumption as a measure of general well-being and welfare. Some of the states with the highest VAT rates on alcohol are Maharashtra which charges a whopping 65% VAT on sale of liquor and Tamil Nadu which taxes alcohol at 58%.

Types of VAT Rates Applied

In India, the Value Added Tax (VAT) system incorporates various rates that apply to different goods and services, designed to accommodate the diverse nature of the market and economic policies. These rates are categorized mainly into three types: the standard rate, reduced rate, and zero rate, each tailored to impact the pricing structure differently and ensure tax equity among consumers and businesses.

The Standard Rate is the most commonly applied VAT rate, affecting a wide array of products and services that do not qualify for reduced or zero rates. This rate is crucial as it represents the baseline tax percentage that the majority of goods and services incur, ensuring substantial revenue collection for the government.

Conversely, the Reduced Rate is applied to essential items, such as certain food products and essential commodities, which are considered necessary for daily living. This rate is lower than the standard rate, aiming to reduce the financial burden on lower-income consumers, thereby promoting affordability and accessibility.

Lastly, the Zero Rate applies to items that are deemed essential but are taxed differently. Items under this category are not subjected to VAT at the point of sale but allow businesses to claim credits for the VAT paid on inputs. This unique feature helps maintain the flow of essential goods and services without the tax cost cascading through production levels, ultimately benefiting the final consumer.

VAT Compliance and Filing in India

In India, adhering to VAT compliance involves meticulous record-keeping and regular VAT return filings, which are fundamental responsibilities for registered businesses. The frequency of filing VAT returns can be monthly, quarterly, or yearly, largely depending on the business’s turnover and the stipulations set by the tax authorities. This structured approach ensures that businesses contribute appropriately to the nation’s revenue on a regular basis.

For businesses, maintaining accurate records is essential for smooth VAT compliance. The records must encompass all transactions that attract VAT, including sales, purchases, and expenses. Documents such as invoices, receipts, and ledgers should be kept systematically to support VAT filings. These documents not only facilitate the accurate calculation of tax liability but also serve as proof in the event of an audit.

Regular VAT return filing allows businesses to report their VAT liability and reclaim any excess VAT paid on business inputs. For most businesses, this process is integrated into their routine accounting practices, ensuring transparency and consistency in tax reporting. The adherence to these procedures not only aids in avoiding legal complications but also enhances financial management by providing clear insights into the business’s cash flows and tax obligations.

Conclusion

Regulatory requirements such as taxation can be a bit cumbersome for businessmen whose attention is solely focused on growth and profitability. With tax rates changing year on year depending on the budget and the economic climate, it is very difficult for a business owner to divide attention between the business and the regulatory formalities. This is why it is important to engage with a tax expert who can guide and assist you with your tax related requirements.

If you have any further queries on VAT or any other tax related query, get in touch with our team of experts today and they will resolve all your queries and assist you with your requirements.

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FAQs on Value Added Tax (VAT) in India

How is VAT tax calculated with an example?

To calculate VAT, multiply the sale price by the VAT rate. For ₹200 × 18% VAT = ₹36.

What is 12% value-added tax?

A 12% VAT means a 12% tax is added to the sale price. For example, ₹100 × 12% = ₹12 VAT.

What is the difference between VAT and GST?

VAT is state-specific, while GST is a unified national tax system, combining state and central taxes for consistency across India.

What is the difference between VAT and Sales Tax?

VAT is a multi-stage tax on goods and services, while Sales Tax was a one-time tax on the final sale of goods.

What is the difference between VAT and Income Tax?

VAT is an indirect tax on goods and services, while Income Tax is a direct tax on income and profits of individuals or businesses.

In which state of India was VAT first introduced?

VAT was first introduced in Haryana on 1 April 2005, making it the first state in India to implement the Value Added Tax system.

Which committee introduced VAT in India?

The Tax Reforms Committee, chaired by Raja J. Chelliah, recommended the adoption of VAT in India in its 1991 Interim Report. The committee proposed VAT as a replacement for central excise, state sales taxes, and other indirect taxes.

When was VAT removed in India?

VAT was replaced by the Goods and Services Tax (GST) on July 1, 2017, streamlining indirect taxes and replacing the state-specific VAT system with a national unified tax.