Sales Tax & VAT

The primary difference between Sales Tax and VAT is in the way tax is levied. In case of Sales Tax, the tax is generally levied at either the first point or the last point in the production and distribution chain. It is therefore a single-point tax system. In case of VAT, the tax is levied at each point in the production and distribution chain. Thus, VAT is a multi-point tax system.

VAT is the abbreviated form for Value Added Tax. Value Added Tax as the name suggests, is an indirect tax calculated on the ‘value added’ to the goods and services at each point in the production and distribution chain. It is charged as a percentage of prices, which means that the actual tax burden is visible at each stage in the production and distribution chain.

In India, the Tax Credit method is followed to calculate VAT. VAT is calculated on both the purchase and sale transactions in the chain of production and distribution of goods and services with the provision for a set-off for the tax paid at earlier stages in the chain.

There are few typical terms used in VAT that we need to know. Let us discuss these terms. The terms used in VAT are:

Tax Payers Identification Number (TIN)

Input Tax

Output Tax