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.

21 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.

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

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  3. Hey Ram,

    I'm glad to know this has helped you!

    Javier

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  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.

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    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

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  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.

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

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

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  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

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  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

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  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!

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

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  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.

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  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.

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

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  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

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    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

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  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

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    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

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