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What is the Difference Between VAT and CST

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What is the Difference Between VAT and CST ?

There is always confusion what is the Difference between VAT and CST. Hence, today we discuss what is the difference between VAT (Value Added Tax) and CST (Central Sales Tax) .

VAT (Value Added Tax) and CST (Central Sales Tax) are indirect taxes that are levied on sales of goods.

Whenever goods are sold the seller has to levy and collect tax. Although both are levied on sale of goods there are many differences in both the taxes.

The primary difference is that CST is a Union subject (monitored by Government at Center) whereas VAT is a state subject (monitored by Government at State).

CST is similar throughout the country whereas VAT differs from state to state. Everything differs, that is, from rates to rules of taxation.

Point of applicability

Hear some point that define Difference between VAT and CST

  1. CST is levied on inter-state sales when goods are purchased or sold between two or more states.
  2. But VAT is applicable only on intra-state sales, that is, sales made within the state.
  3. VAT is applicable on multiple points of sale. This is done to lessen the burden on end consumer.

Service Tax Registration image

For instance, when a manufacturer sells goods to a distributor worth ₹1 lac, then it will charge VAT on that amount. If the distributor adds ₹50,000 profit and sells the goods to a retailer at ₹1.5 lacs then it will levy tax on the difference, that is, on ₹50,000. Again when the retailer will sell those goods to customers he will levy the tax only on the profit he has added. Not on the full amount.

  1. VAT removes double taxation and distributes the amount of tax among all the sellers.
  2. Whereas, CST is a single point taxation system wherein it is charged at the end and not at multiple points.

Input credit

In CST there is no input credit available whereas in VAT an assessee gets the input tax credit of tax he paid while purchasing goods. The remittance he has to do is the difference in tax levied by him on sales and the tax he paid on purchases.

In case of CST there is no provision for input tax credit. Also, in CST there is cascading effect, that is, tax on tax.

I hope this article on 'What is the Difference Between VAT and CST' was useful for you. For more information you can visit www.registrationsindia.com

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