Mar 8, 2011

I want to start selling, should I register and charge VAT (Value Added Tax)?



Recently, a reader who is about to start an online business asked me this question... At that moment I didn't know the answer, so today that I visited my Chartered Accountant decided to clarify this (also because I'm thinking of a new venture on these lines).

A company is only required to register for VAT if its turnover for sales of goods is above Rs. 5 lakhs (Rs. 500,000). Thus, while your turnover is below that, you need not register for it, nor charge your customers for this.

Certainly, you can register for it even before if you want to. It will cost about 20 to 30,000 Rupees, and eventually you will recover this money from the government at the end of the Financial Year as a settlement when you file your income returns.

If you are starting your business, my advice is that you wait and only when you see things are moving on well and you are getting close to Rs. 5 lakhs turnover, then approach your C.A. for VAT registration. Surely your clients will appreciate it.

Note that Sales tax and VAT are one and the same thing.

But VAT is separate from Service tax. Even if your company's turnover for services is above 10 lakhs and you are registered for Service tax, this is completely independent and does not affect VAT.

According to my CA they will unite these two in the future into one (called Goods and Sales Tax, GST), with benefits for tax deductions... But this may not happen until 2012 or 2013.

68 comments:

  1. UnknownMay 13, 2011 at 1:15 AM

    If my turnover is more than 5 lakhs on non vat applicable goods and less then 1 lakhs on vat applicable good, do i need to charge vat.

    ReplyDelete
  2. RamNovember 9, 2011 at 10:21 AM

    thanks, after a day's search I finally got the answer I was looking for.

    ReplyDelete
  3. Javier MoralesNovember 9, 2011 at 12:48 PM

    Hey Ram,

    I'm glad to know this has helped you!

    Javier

    ReplyDelete
  4. AnonymousFebruary 5, 2012 at 2:49 AM

    on a similar context i wanted to resolve a doubt,i am soon going to start an online service firm efficient in providing services online.starting off with a turnover of about 50000rs what procedures should be adopted in setting up the firm,please also mention the compulsory legal procedures.

    ReplyDelete
    Replies
    1. Javier MoralesApril 13, 2012 at 10:53 AM

      Hello there,

      I don't know why I hadn't seen your comment earlier... really sorry for the delay.

      In case you still need that info, maybe you would like to follow this link: http://mumbaientrepreneur.blogspot.in/2008/11/legal-process-to-start-company.html

      or

      http://mumbaientrepreneur.blogspot.in/2008/11/last-friday-after-posting-on-blog-i-had.html


      If you need more information, let me know.

      Javier

      Delete
  5. AnonymousJune 9, 2013 at 5:44 PM

    Hi Javier,
    If you have any knowledge on App developers, who want to sell their apps on the app stores (apple, goolge etc)
    How can I start with, Currently its only me, with couple of apps, that I am still working on.
    If they start selling good on the app stores, which will make me to expand as app developer firm, How can I register the start-up firm, to be recognized as a corporate in Apple store, Google Play store etc.

    So put guide to achieve my goals.

    ReplyDelete
  6. manipalNovember 29, 2013 at 3:48 PM

    VAT registration will not cost that much as he said 20 to 30,000 rupees. It will be around 4 to 6000 only...

    ReplyDelete
  7. manipalNovember 29, 2013 at 3:50 PM

    As said above VAT registration charge is 20 to 30000 is totally wrong. it will be around 4 to 6000 only..

    ReplyDelete
  8. AnonymousJanuary 31, 2014 at 1:38 PM

    I would like to know if I need a VAT registration for selling ready made garments manufactured by me, I also need to purchase clothes from Mumbai and outside Maharashtra, Please advise

    ReplyDelete
  9. AnonymousJanuary 31, 2014 at 1:55 PM

    I would like to purchase spices and tea from outside Maharashtra for selling within the state.should I take vat & CST or can I purchase the goods till turnover of 5 Lakhs, Pl.advise

    ReplyDelete
  10. Javier MoralesFebruary 1, 2014 at 10:20 AM

    Hello, as far as I know, you do not require to register at any of these taxation departments until you have a large enough turnover.

    It used to be 5 lakhs when I wrote this post. It may have changed by now so I suggest you enquire from your CA, just in case.

    But don't take too much tension, and don't let it be an obstacle for you to roll out your business! All the best!

    ReplyDelete
    Replies
    1. lekhJuly 17, 2015 at 10:56 AM

      javier sir,

      i am starting merchant exporter biz on handicarft.pls let me know what registraions i need to undergo..sales tax or VAT regn?? turnover expecting is below 5L (as im startup and not sure how much it wud be)...

      earnings from exports exempted and only income tax applicable?do i need sales tax /VAT in the first place??

      pls advice..

      god bless u sir...u doing a great job helping ppl like us..who are willing to shine..but stoping due ot lack of proper knowledge..

      take care

      thnx

      lekh

      Delete
    2. Javier MoralesJuly 18, 2015 at 4:01 AM

      Hi Lekh, being an exporter, you will not need to charge VAT or sales tax, irrespective of what's your turnover. Remember these taxes are only for the internal sales in India. Your customer will have to pay some import duties in his country, but you don't have anything to do with that.

      And yes, you will have to pay income tax, depending on what's your total yearly income.

      I'm glad this helps you... and all the very best for your business!!

      Delete
    3. lekhJuly 20, 2015 at 8:29 AM

      thank you so much, Javi sir.!!

      Delete
  11. AnonymousFebruary 11, 2014 at 6:22 PM

    Voluntary VAT registration will cost 25,000 to 30,000

    ReplyDelete
  12. VAT registration in MumbaiMarch 10, 2014 at 7:40 PM

    yes of course you should register and charge vat it will help you in growing business,suggestion apart your blog is interesting I will follow this for sure.

    ReplyDelete
  13. VikasMay 17, 2014 at 10:45 AM

    In case you have inter state purchases or sales of Rs. 10000 or more during the year then you become liable for CST in that case u can apply for voluntary registration. And as u apply for CST, VAT can also be applied and u dont need to give deposit of Rs 30000. But the dept. does accept the transaction as geniune so easily.

    ReplyDelete
  14. RohanJuly 9, 2014 at 11:04 PM

    Thanks for your information. It is really helpful to us.

    ReplyDelete
  15. VAT registration in MumbaiJuly 11, 2014 at 5:02 PM

    Thanks for your valuable blog.

    ReplyDelete
  16. UnknownOctober 19, 2014 at 11:05 PM

    Hi Javier/Vikas,

    Although you have clarified most of the things I still have some doubts.

    I'm planning to start selling on e-commerce site and they are asking for VAT/CST number mandatory.

    I believe CST registration can be done online with No or minimal charges but for VAT is it true that you need to apy Rs.25000/- deposit? I read that deposit can be adjusted against you tax liability. But what if I dont cross the 5Lac turnover?

    Also let me know if there is any way of getting VAT number without paying deposit.

    Thanks in advance

    ReplyDelete
    Replies
    1. Javier MoralesNovember 3, 2014 at 11:24 AM

      Hi Mayank,

      Getting the VAT is not easy, and it is expensive. I'm not sure about the figures you mention, though.

      If you are serious and certain about your business, go for it so that you can start selling at Flipkart (I guess this is where they asking you for VAT). However, if you want to first test the waters, try selling at another site, and only after you know yourself and your business better, invest further.

      Regards,
      Javier

      Delete
    2. UnknownJuly 15, 2016 at 3:36 PM

      that's really confusing , when not require why asking vat no , I'm exporter vat no is not require for iec holder but to opening c/a bank people ask I applied and got vat that's not require for me at all , reason everywhere was asking , now every month pay to CA to apply , icant understand when not require why I should take all headach to apply and get vat , mostly get confused by banks , custom and etc they are not clear about the rule , one thing I understood should not apply in initial stage of your business once you are on track then apply .

      Delete
  17. UnknownNovember 2, 2014 at 1:42 AM

    I am beginning a small business by becomming a seller at one of the online portal but they need VAT.. I am not sure if its worth to get a VAT for some one like me who is just beginning?

    Also what all would I need... CST, TAN etc can you please advise?

    I am initiating this from my home.

    Would love to see a good response on the whole situation ....to get your insight.

    Thanks
    Saud

    ReplyDelete
    Replies
    1. Javier MoralesNovember 3, 2014 at 11:21 AM

      Hi Saud,

      Is it Flipkart where you are trying to sell? I believe they are requesting VAT in order to ensure that no individuals who are just beginning are the ones selling at their site. I think maybe you could start selling at other site where they don't ask you for this (maybe ebay) so that you see how you can work out the whole process, and once you are confident, then do the investment of your registrations, etc.

      TAN is something easy to get even for an individual, although I don't see the purpose why you need it.

      CST... no clue about the process.

      I hope this helps you!

      Regards,
      Javier

      Delete
  18. AnonymousDecember 12, 2014 at 12:16 PM

    I am planning to start a properitory firm. Please advise how much charges for Vat and CST registration? How much does a CA charge to get the same done? How much does a CA charge for taking care of CST and VAT returns per year ? Please guide. Thanks

    ReplyDelete
    Replies
    1. Javier MoralesDecember 12, 2014 at 12:29 PM

      Hey, what the CA might charge you, depends on many things... If you write me an e-mail, I can recommend you a good and reliable CA that charges very decent fees for his services.

      Cheers.

      Delete
    2. lekhJuly 17, 2015 at 10:50 AM

      javier sir,
      i am starting a merchant exports in handicarfts.
      pls let me know what registration i need to undergo..sales tax or VAT..my turnover would be below 5Lac..

      exports are exempted from tax?do i need the Sales tax or VAT registration in the first place?unable to find these answers..

      god bless u sir...u helping ppl like us who are willing to start and excel but due to lack of proper knowledge we arent..

      tc

      thnx
      lekh

      Delete
  19. AnonymousDecember 18, 2014 at 12:40 PM

    I am planning to start a proprietary trading firm in Mumbai. I need to get CST/Vat registration. CST / VAT registration needs to have Current Bank account. However Bank is asking for at least 1 document showing government registration. As I am planning to operate from home, I can not register with Municipality under shops and establishment. Can you advise if any other registration with municipality as a proof of business, which I can show to bank. Pl advise.

    ReplyDelete
    Replies
    1. Javier MoralesDecember 18, 2014 at 1:28 PM

      Hey there,

      To get the CST/VAT registration you will also need to be registered as a company, hence you might as well do it for the bank opening account.

      You will need to register your business with the MCA, and I really doubt is needed to have the shops and establishment license.

      For the registration with the MCA you will need the help from a Company Secretary and Chartered Accountant. Being a sole proprietorship, I don't think it would be very difficult nor expensive.

      All the best,
      Javier

      Delete
  20. AnonymousDecember 18, 2014 at 4:16 PM

    Thanks Javier,

    But can one register with MCA being sole proprietory firm??

    ReplyDelete
    Replies
    1. Javier MoralesDecember 22, 2014 at 9:32 AM

      I'm not really sure. The best would be if you consult a CA (I could suggest you somebody, if you wish).

      Anyhow, you can also check this info:

      http://www.sumedh.info/articles/sole_proprietorship_service_tax_india_aces_current_account.php

      Do let us know how it goes!

      Delete
  21. AnonymousMay 7, 2015 at 4:36 PM

    if i am not doing voluntary registeration and wait for my turnover to cross 10 lacs then is it like i will need not to give a security amount of 25000 and only registeration fees of Rs 540 would be asked.
    Very important and urgent for me to know. All sort of help would be appreciable.

    thanks a ton.

    ReplyDelete
    Replies
    1. Javier MoralesMay 8, 2015 at 8:58 AM

      Hey there, I'm sorry, I don't really understand your question. And unfortunately, I haven't dealt with this Service Tax issue for quite some time. Would be better if you get updated information from your CA.
      All the best!

      Delete
  22. AnonymousMay 28, 2015 at 6:32 PM

    Javier If my turnover is more than 5 lakhs on non vat applicable goods and less then 1 lakhs on vat applicable good, do i need to charge vat.

    ReplyDelete
    Replies
    1. Javier MoralesMay 28, 2015 at 8:20 PM

      As far as I understand, no, you don't need to charge VAT. However, are you sure the "non-VAT applicable goods" are really non-VAT applicable? I'd suggest you confirm it from an expert source.

      Delete
    2. DanApril 3, 2016 at 1:33 PM

      The list of non-VAT applicable goods in Maharashtra can be accessed here. It also has a list of other VAT incurring goods and their rates - http://www.indiafilings.com/learn/wp-content/uploads/2014/11/Maharashtra-VAT-Tax-Rates.pdf

      Delete
  23. UnknownJune 3, 2015 at 5:56 PM

    Hi Javier,

    I sell unstitched dress materials (ladies dress materials) through one of the social networking site. Do I need to apply for VAT registration if the annual turnover exceeds 5 Lakhs?

    ReplyDelete
    Replies
    1. Javier MoralesJune 4, 2015 at 4:19 AM

      Hello Nevin, I believe you have to apply for VAT and start charging it. Congratulations for your good business!

      Delete
  24. AnonymousJune 21, 2015 at 4:37 PM

    Hi Javier,

    I would like to start online business on filpkart, in this case I have to get VAT ID.

    My query: If business turnover is below 5Lack then the 25K VAT expense/charge is refundable?

    ReplyDelete
    Replies
    1. Javier MoralesJune 22, 2015 at 8:41 PM

      Yes, I think you will eventually get it credited... although I suppose it won't be 100%.

      Delete
  25. JigarJuly 2, 2015 at 6:03 PM

    Hi Javier,


    If my business has not reached 5 lac turnover so should i necessarily apply for VAT & CST registration.IF i receive purchase bill from Seller with VAT charged then should i charge VAT to the purchaser ( that is customer) . Also Can i give Invoice with PAN number in case if i have not registered for Sales Tax number and VAT . How i can do transaction with firms without Sales Tax number or VAT since the firms will not accept any Bill without VAT or CST .Also they may deduct TDS which i can not claim from the Govt for the same as i have not registered my firm.

    Your reply will be helpful.

    Regards

    Jigar Shah



    ReplyDelete
  26. Javier MoralesJuly 3, 2015 at 9:26 PM

    Hey Jigar,

    I'll try to reply as best as I can...

    The TDS can and should be deducted, even if you are not registered for VAT or CST. They are not related, and if you are providing a professional service, your clients should deduct from you for that.

    Giving your invoice with PAN number will help you in case they deduct TDS from you... so that they file it accordingly towards your account. As I say, it is independent of VAT or Sales Tax registration.

    You cannot charge VAT or Sales Tax if you are not registered for it. As it is, you cannot charge any tax that you are not going to forward to the respective tax department.

    Usually, I think, firms will be glad not to have to pay any VAT or CST. But if any of them is asking you for it, and is a good client, then you might register even if it is not mandatory for you to do so.

    Finally, if you are not registered for VAT, then you cannot claim the VAT of your purchases either.

    All the best,
    Javier

    ReplyDelete
  27. AnonymousJuly 27, 2015 at 12:57 PM

    hello sir this is sai i want sell a dress materail and my investiment is 50,000 then i want apply the vat

    ReplyDelete
    Replies
    1. Javier MoralesOctober 29, 2015 at 3:55 AM

      All the best for your business. It would be good that you approach a CA that can help you to do the process... but consider if your turnover will be more than 5 lakhs

      Delete
  28. AnonymousAugust 20, 2015 at 12:29 AM

    Actually we are planning to start a business online and for that we are having our own website ,so is it required to register for VAT ID in that case because we are just stating it and one more thing if without registering for VAT ID we started our business is it legal or not.

    ReplyDelete
    Replies
    1. Javier MoralesOctober 29, 2015 at 3:56 AM

      Hello there... I think it is legal, and I think you don't need to register for VAT right away. As your business grows, then go doing those registrations little by little... but don't forget them either ;)

      Delete
  29. TallySeptember 26, 2015 at 11:37 AM

    hello... hapi blogging... have a nice day! just visiting here....

    ReplyDelete
  30. UnknownOctober 2, 2015 at 10:03 AM

    I want to start my small business and sell online (like Flipkart/ Snapdeal). During their registration, they are asking for VAT/ TIN. Mine is just a startup and turnover will be well below 5L p.a. How do I proceed in such a case? Quick guidance will be appreciated.

    ReplyDelete
    Replies
    1. Javier MoralesOctober 29, 2015 at 3:58 AM

      I believe Flipkart is setting this requirement to ensure that no small parties and individuals take part in their system. It's a kind of a filter I suppose.
      So, I guess that if you want to go for Flipkart, you'll need to take a leap of faith and register for VAT from the beginning.

      Delete
  31. Tally SalesOctober 9, 2015 at 12:56 PM

    Many Thanks for your Blog Post. Good Resources for All.

    ReplyDelete
  32. UnknownOctober 10, 2015 at 2:31 PM

    Hi All,
    Plz read carefully to my question:

    I am new seller for selling online.
    but amazon, flipkart,eby asking vat# for selling on online sites.
    We did not sell still today. so my humble request to you all guys that how many cost I have need for registration of vat#?

    We live in Maharashtra state
    plz help me on this..

    ReplyDelete
    Replies
    1. Javier MoralesOctober 29, 2015 at 3:59 AM

      Rather than expensive, I think it is a tedious matter to register for VAT. But if you really want to sell at Flipkart, I think you'll have to register yourself for VAT... I believe it is a kind of filter they are setting.

      Delete
  33. UnknownOctober 10, 2015 at 2:36 PM

    This comment has been removed by a blog administrator.

    ReplyDelete
  34. EagaOctober 17, 2015 at 12:14 PM

    Really helpful post.Thanks for sharing.

    ReplyDelete
  35. UptraOctober 29, 2015 at 3:02 PM

    If you haven’t exceeded the threshold for compulsory registration you can still register voluntarily if it makes sense for you to do so.

    ReplyDelete
  36. UnknownNovember 3, 2015 at 5:10 PM

    My question is what is turn over ? if limit for vat is Rs.5 lks. If i am treading, i bought goods worth 2 lks and sell for 3 lks....what is my turn over? 3 lks or 5 lks ?

    ReplyDelete
    Replies
    1. Javier MoralesNovember 3, 2015 at 7:03 PM

      Turnover is your total sales. In the case you mention, is 3 lakhs.
      Cheers!

      Delete
  37. Google FanNovember 4, 2015 at 12:01 AM

    Hi,

    I've registered on e-commerce website and also got Vat certificate since they were asking for it. Not i know my turn over is not more than 5lac pa. Do I need to file vat returns now? I just got the certificate for registration purpose as the website demanded it.

    ReplyDelete
    Replies
    1. Javier MoralesNovember 4, 2015 at 2:05 PM

      Well, I believe that's one of the troublesome things of the VAT registration... that you will have to do the filing every year. Do ask your CA to confirm.

      Delete
  38. UnknownJanuary 19, 2016 at 5:53 PM

    Hi there, I am a fashion designer starting to sell designer wear online - across india and worldwide.
    I have got the payment gateway PayPal and others online on the website itself. I am applying for a sole proprietorship and a VAT registration in a day or two.
    In India I need VAT, in order to export I guess I need an export license? Also the customers abroad pay custom duties so Im guessing I won't be charging them VAT since its not applicable to them, Am I correct with the above points since thats the information I have been able to gather so far asking friends etc. Im based in Chandigarh.

    What else would i require?
    Would really appreciate for any information..

    Regards
    Jasmine

    ReplyDelete
  39. UnknownMay 12, 2016 at 11:22 AM

    Hi there i newly started a business in Maharashtra and i am importing the products from Telangna state and i will sale it in Maharashtra only so i have some question in my mind.
    1). My turnover is not more than 5 lack till now so should i register for VAT/CST ?

    2).When i purchasing the products from my dealer he charged full VAT as per the Telngana state rules so the product got expensive so what should i do.
    3). If i register only for CST can save the taxes charged by the dealer.

    Please help
    thanks.

    ReplyDelete
    Replies
    1. Javier MoralesMay 12, 2016 at 7:39 PM

      Hey there,

      I think that:
      1) No, you don't have to.
      2) You have to pay. Only if you are registered then you will be able to deduct that from your payments... but is it really worth it? Make the numbers.
      3) Yeah, maybe. You should make the numbers helped by a CA... I wonder if it is worth it.

      Cheers!

      Delete
  40. lekhMay 13, 2016 at 1:44 AM

    hi javi sir,
    i am on verge of starting my Investment advisory firm (SEBI registration ..few days away)..pls let me know how much service tax i need to collect..i am aware theres no service tax if the turnover is below 9lacs p.a

    regards,
    lekh

    ReplyDelete
    Replies
    1. Javier MoralesMay 14, 2016 at 3:24 AM

      Hello Lekh, the minimum turn over is 10 lakhs, but they advice that you register after your turnover reaches 9 lakhs, for safety purpose (that you don't cross it and try to register in the last moment).
      All the best!

      Delete
  41. UnknownMay 13, 2016 at 11:16 PM

    Thanks Javier.

    ReplyDelete
  42. tax baniyaJune 28, 2016 at 3:33 PM

    Vat is different from service tax. In vat if you cross the turnover of Rs 10 lak local and out of state 1 laks than there is compulsary to take the vat number. http://taxbaniya.com/category/business-registration/vat-and-cst-registration/

    ReplyDelete

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