Application of Value Added Tax (VAT) in India in the field of indirect taxation and the reasons for introducing Goods and Services Tax (GST),
APPLICATION OF VALUE ADDED TAX (VAT) IN INDIA Value Added Tax was introduced in India in 2005 as a major reform in the field of indirect taxation. It replaced the earlier sales tax system, which suffered from multiple problems like cascading effect, lack of transparency, and tax evasion. VAT was applied mainly on the sale of goods within a state. Each state government had the power to levy and collect VAT, which made it a state-level tax. ROLE OF VAT IN INDIRECT TAXATION VAT played an important role in improving the indirect tax system in India. It shifted the system from a single-point tax to a multi-point tax. Under sales tax, tax was imposed only at one stage, usually at the final sale. Under VAT, tax was collected at every stage of sale, but only on the value added. VAT introduced the concept of input tax credit. This allowed dealers to deduct the tax paid on purchases from the tax payable on sales. This reduced the burden of tax and eliminated double taxation. VAT ...