DUTIES & TAXES INVOLVED IN

RETAIL TRADE

AGENDA
Sales Tax/VAT
CENVAT
CST
GST

Taxation in India Introduction

India has a well developed tax structure with a 3tier federal structure:
the Union Government,
the State Governments and
the Urban/Rural Local Bodies.
These bodies levy taxes/duties in accordance with
the provisions of the Indian Constitution
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Union Government
Income Tax (except tax on agricultural income,

which the State Governments can levy),

Customs duties,
Central Excise
Sales Tax
Service Tax

State Governments
Sales Tax (tax on intra-State sale of goods)
Stamp Duty (duty on transfer of property)
State Excise (duty on manufacture of alcohol)
Land

Revenue

(levy

on

land

used

for

agricultural/non-agricultural purposes)
Duty on Entertainment
Tax on Professions & Callings.
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Local Bodies
tax on properties (buildings, etc.)
Octroi

(tax

on

entry

of

goods

for

use/consumption within areas of the Local

Bodies),
Tax on Markets and
Tax/User Charges for utilities like water supply,
drainage, etc.
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Since 1991, .
.some of the changes in the tax system in India
are:
Reduction in customs and excise duties
Lowering corporate Tax
Widening of the tax base and toning up the
tax administration

Direct Taxes
Personal Income Tax
0 1.8 L *(1.90 L)

: 0%

1,80,001 - 5L

: 10%

5,00,001 8L

: 20%

8,00,001 and above

: 30%

Corporate Income Tax

for domestic companies = 30% + 5% (surcharge) +
3% (education cess)
for foreign company = 40% + 2.5% sur. + 3% edu.
*Limit of 190k is for women

Tax Incentives for Industries

Tax exemption of 100% on export profits for ten

years upto F.Y. 2009-10, for new industries

located in EHTPs and STPs and 100% EOU

For units set up in SEZs, 100% deduction of

export income for first 5 years followed by 50%
for next 2 years, even beyond 2009-10

Tax Incentives for Industries

Tax exemption of 100% of Export profits for 10 yrs
for

new

industries

located

in

Integrated

Infrastructure Development Centres or Industrial

Growth Centres of the North Eastern Region

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Sales Tax
Central Sales Tax (CST) is 4% on manufactured
goods

Local Sales Tax (LST) in case of local sale,

governed by relevant state tax legislation -

normally up to 15%, (Bihar-5%)

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Excise Duty
Excise duty on most commodities ranges
between 0 to 16%.
32% duty on motor cars, tyres, aerated soft
drinks, air conditioners, polyesters filament
yarn, pan masala and chewing tobacco
Duty = 30% on petrol + Rs.7/litre as additional
excise duty
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CENVAT
A.k.a. Central Excise VAT which is charged on the

production of goods within India, and is levied by

the central govt., avoids cascading effect on duty
Standard rate for CENVAT is 10.3% since Feb10
CENVAT filings are monthly, on the 10th day
following the period end
SSI is exempted from payment of excise duty from
annual production up to Rs.1 crore

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VAT
A.k.a. Central Sales Tax (CST) on the sales and
purchases of goods between Indian States and is
charged by the State of goods departure.

VAT is charged at 4%.

VAT reporting is either monthly or quarterly, depending

on the relevant States rules.

the tax paid on earlier point is allowed as a deduction
(tax may be payable only on the differential value)

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Example
To illustrate, say, the first sale is effected at Rs
100. The second sale is effected at Rs 120. The
third sale is effected at Rs 150. The rate of VAT is

say 10 percent.

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Example
In this case, on first sale, VAT of Rs 10 would be payable.
On second sale, VAT of Rs 12 would be payable; but, the
second dealer would be allowed a deduction of Rs 10
being VAT paid on first sale.
Thus, on second sale, effectively, VAT would be payable
on differential price of Rs 20.
On third sale, VAT of Rs 15 would be payable; but, the
third dealer would be allowed a deduction of Rs 12 being
VAT paid on second sale.
Thus, on third sale, effectively, VAT would be payable on
differential price of Rs 30.
Accordingly, the aggregate tax would be Rs. 15.
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Service Tax
Service Tax is charged on certain services and is
levied by the central government
Service Tax is levied at 10.3%.
If required, Service Tax filings are bi-annual

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G.S.T.
There are advanced plans to introduce a
unifying General Sales Tax (GST) in 2011
We have all seen and are aware of the impact
that VAT has had on the supply chain so far.
There are 4 key characteristics of the GST regime

that will impact the supply chain further:-

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G.S.T.
1. It is expected that we will have a dual GST structure
- State GST and Central GST. Central GST chain may
extend right upto the last transaction at the retail
level.
State GST would comprise of VAT/Sales tax, State
cesses and surcharges on goods and services,
Octroi, Entry tax, taxes on lotteries, betting,
gambling and purchase tax as the main
components.
Central GST would incorporate Central excise
duties, additional customs duty, CVD, surcharges,
allied levies and service tax as the key taxes.
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G.S.T.
2. Octroi and Entry tax are expected to be
disbanded
3. Inventory during transition will be impacted as
post GST, inventory will carry Central GST
4. The tax disincentive of cross-border sales and

supplies which is currently there because of CST

will hopefully go
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Summary
Sales tax- Same as VAT, mostly dominated by VAT
CST is levied on the INTER STATE sales of goods.
VAT is levied on the INTRA STATE sales of goods
EXCISE is charged on MANUFACTURED goods by
CENTRAL GOVT.

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