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.

37 comments:

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

    ReplyDelete
  3. Hey Ram,

    I'm glad to know this has helped you!

    Javier

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

    ReplyDelete
  8. 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. 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. 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
  11. Voluntary VAT registration will cost 25,000 to 30,000

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

    ReplyDelete
  15. 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. 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
  16. 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. 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
  17. 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. 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
  18. 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. 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
  19. Thanks Javier,

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

    ReplyDelete
    Replies
    1. 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
  20. 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. 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
  21. 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. 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
  22. 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. Hello Nevin, I believe you have to apply for VAT and start charging it. Congratulations for your good business!

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

      Delete
  24. 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
  25. 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