India VAT

Post 2005, most Indian states have replaced their State level sales tax with a more progressive and simplified levy in the form of VAT.

Unlike Indian Sales Tax, VAT is an intra-state multi-point tax system and is levied on the value added at each stage. Under the VAT regime, the VAT paid by registered persons on goods (including capital goods) purchased from within the state is available for input tax credit. The input tax credit can be used to offset periodic liability either under VAT or the CST. This ensures that the cascading effect of taxes is avoided and that only the value addition is taxed.

Currently, there is no VAT on imports into India and exports are zero-rated. This means that while exports are not charged with VAT, VAT charged on inputs purchased and used in the manufacture of export goods or goods purchased for export, is available to the purchaser as a refund.

VAT refunds in India

There is no provision in the law for the refund of VAT to non-registered foreign companies.

Also under the Foreign Exchange Management Act, a foreign company requires prior approval from Reserve Bank of India before commencing or carrying out any business activity “in” India.

Indian VAT rates

State VAT is charged at varying rates. For example: 0%on natural produce and essentials;1% on bullion;4% /5% on industrial inputs; and 20% on alcohol.

Goods other than those covered under the above rates are charged at a general rate ranging from 12.5% to 15%.

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