The basic design of the State Level Value Added Tax. The features of the VAT at the State Level as indicated is given below:

• Input tax credit in relation to any period can be set off by a registered dealer against his output tax.
• VAT liability of a dealer is to be calculated by deducting input tax credit from tax collected on sales during the payment period.
• Input tax credit is available for both manufacturers and traders for purchase of inputs / suppliers meant for both sale within the State as well as to other States, irrespective of when they would be ultimately utilized or sold.
• Excess credit would be carried over to the end of the next financial year. Where there is any excess unadjusted input tax credit at the end of the second year, the same shall be eligible for refund.
• Input tax credit on capital goods will be available both for the manufacturers and traders.
• Units located in Special Economic Zones and 100 % EOUs will be granted either exemption from payment of input tax paid within 3 months.
• CST purchases would not qualify for credit.
• VAT would be levied on goods when sold on or before 1-4-2005 and input tax credit would be given for the sales tax already paid in the previous year. This tax credit would be available over a period of 6 months after an interval of 3 months
• Registration of dealers with gross annual turnover above Rs.5 lakhs would be compulsory
• Small dealers with gross annual turnover not exceeding Rs. 5 lakhs will not be liable to pay VAT.
• There would be a Tax Payer Identification Number (TIN)
• VAT liability will be self - assessed and there will not be any compulsory assessment at the end of each year.
• All other existing taxes such as turn over tax, surcharge, additional surcharge, and special addition tax would be abolished States, which have already introduced entry tax and which intend to continue such levy, should make entry tax vattable. However this should not apply to entry tax that may be levied lieu of Octroi.
• Penal provisions would not be stringent than existing provisions.
• There would two basic rates of 4 % and 12.5 % plus a specific category tax exempted goods and a special VAT rate of 1 % for gold and silver ornaments, etc.
• There would about 270 commodities under the 4 % categories comprising of basic necessities such as medicines and drugs, agricultural and industrial inputs, capital goods and declared goods. The schedule of commodities would be attached to the VAT Bill of every State.
• The remaining commodities would fall under the general VAT rate of 12.5%.
• CST would continue and the Empowered Committee would review the position regarding CST during 2005-2006 and a suitable decision on the phasing out of CST will be taken.

Withholding Tax in India

Withholding of tax is required from all payments chargeable to tax made to non- resident at rates specified under the domestic law treaty.

TAX Treaties

Agreements for avoidance of Double Taxation signed by India with various countries are usually based on the Untied Nations Model. They provide a favourable alternative mode for determining taxable business profits, as compared to methods under the domestic tax law. The treaties also provide specifically the mode of taxability of incomes in the nature of dividends, interest, royalty and fees for technical services.

Fringe Benefit Tax

Fringe Benefit Tax (FBT) is to be levied on the employer in respect of the fringe benefits provided/deemed to be provided by the employer to the employee during any financial year.

• The FBT has been introduced in India with effect from 1st April 2005
• It is a tax on expenditure
• It is a tax on employer not on employee
• Rate of FBT is 20% plus surcharge and education Cess on the fringe benefits provided to the employee.
• FBT is in addition to the Income Tax
• FBT is payable even if there is no income tax payable in a particular year
• The employer is liable to furnish a return before the prescribed due date. Interest is chargeable for the delayed submission of return/ delay in paying FBT.
• FBT is payable for every quarter commencing April 2005

Dividends

Dividends can be paid only out of the profits of a year, undistributed profits of previous years. Dividends received in India can be repatriated subject to compliance of exchange control formalities.

Now under section 205(1A) of the Companies Act 1956 Act the 'interim dividend' also can be declared in the middle of a financial year and has the same status of the final dividend. Because of this, once declared by the Board interim dividend cannot be rescinded later and the declared interim dividend has to be paid to the shareholders. Company can declare and pay the dividend to the shareholders subject to complying with the Companies (Transfer of Profits to Reserves) Rules, 1975.

We invite you to browse our website for withholding tax in India . To learn more on withholding tax in India & for any queries contact us at companyadvice@gmail.com .