REGISTRATION AS A DEALER UNDER THE VAT ACT AND INCIDENCE OF TAXATION

1. What is the threshold limit for compulsory registration under the VAT Act?
   The lower limit prescribed by most State VAT Act is a taxable quantum of Rs. 5 Lacs. Dealers who reach this turnover shall apply for registration, normally within 30 days. Subsequent to the release of the White Paper which contained this threshold limit of Rs. 5 lacs, and to assuage the feelings of small traders, States have been given the flexibility to increase this limit up to Rs. 10 lacs.
   
   

2. What are the categories of dealers who have to register under the VAT Act?
   Under all State VAT Acts, dealers who are registered under Central Sales Tax Act have to compulsorily register irrespective of the taxable quantum. For other types of dealers, separate taxable quantum is prescribed. In some States, dealers exclusively dealing in exempt/Tax free goods need not apply for registration.
   
   

3. Should existing dealers under the earlier Sales Tax Act, also apply for registration?
   Most States have provided that existing dealers will automatically be deemed as dealers under the VAT Act, and therefore, need not apply separately for registration.
   
   

4. What are the advantages of registration?
   Registration confers the benefits of taking input credit of taxes paid on purchases. This means that when making the remittance of the output tax payable, such dealers can reduce the input tax and pay only the balance to the State Government.
   Registration also entitles the Vendor to pass on the taxes collected as credit to the purchaser.
   
   

5. Are there any downsides to registration?
   
   The only downside, if one may say so, is the maintenance of proper records including:

1. Tax Invoices relating to Purchases
   

2. Recording purchases into different classes based on the rate of tax paid.
   

3. Recording purchases from different dealers such as Registered, Unregistered, Composition dealers.
   

4. Recording purchases from within the State and from out of the State.
   

5. Recording sales into different classes based on
   

1. Tax free sales
   

2. Export or Zero rated Sales
   

3. Consignment or Branch transfers inside or outside the State
   

4. Sales as gifts or samples
   

5. CST Sales
   

6. Debit and Credit Notes
   

7. Stock Records

6. Is there provision for voluntary registration for dealers having turnover lesser than the threshold? Why is such a voluntary registration provided for?
   
   Every State provides for voluntary registration to dealers who have not reached the threshold limit prescribed. The apparent reason behind such a move is to entitle dealers to enjoy the benefits listed in (4) above.
   
   

7. Is there any presumptive scheme of taxation for dealers having turnover above the VAT threshold?
   
   In order to provide medium scale dealers with a choice of not registering as a VAT dealer, all States have introduced “Composition Schemes” under which dealers with taxable quantum exceeding the lower limit of registration (Rs. 5 lacs) but not exceeding Rs. 50 lacs per annum can opt for Composition Scheme instead of becoming a VAT dealer. The limit of Rs. 50 lacs is based on the statements of the Empowered Committee, but individual States have different limits, with some States such as Maharashtra not prescribing any limit in the Act. We hope States will achieve uniformity on this issue.
   
   However, a dealer registered under CST Act, or a Manufacturer or an Importer is not eligible to opt for this scheme. Dealers engaged in Works Contract or in Hotels and Restaurant business, Caterers, Bakeries can also opt for this Scheme, and the obligations differ from State to State. 
   
   

8. What are the advantages and disadvantages of registration as a Composition dealer?
   
   The main advantage of the Composition Scheme is the flat rate of 1% (Punjab Act stipulates 2%) on the Sales without the need to maintain elaborate records as in the case of a VAT dealer. However for dealers not engaged in sale of goods, but in Works Contract etc., the rate of taxes differ from State to State.
   
   The Composition dealer is not eligible for setting off taxes paid on purchases ( meaning that he cannot take input tax credit) and he cannot also collect the composition tax from his purchasers. This disentitles the purchaser from availing input tax credit. For dealers engaged in Works Contract etc., some States have provided for input tax credit.
   
   

9. Can you explain the competitiveness of a dealer who opts for the Composition Scheme and the one who does not get registered vis-à-vis a Registered VAT Dealer?

Please refer Annexure 4.

STATE-WISE ANAlYSIS