What is the Difference between a State VAT and GST

By Registrationwala

1st April 2017


With less than three months remaining for the implementation of GST (Goods and Service Tax), a lot of people are basically confused about the basic differences between a state VAT (Value Added Tax) and GST.

To begin with, the primary difference between VAT and GST is the authority charging the taxes. VAT is charged by the state government for intra-state transactions while GST will be charged by the central government with two dimensions; CGST (Central GST) and SGST (State GST).

Both GST and VAT are the indirect taxations charged from the manufacturer and trader by the authorities. Usually, traders shift the liability of taxes to final consumers by inflating the price of the final product. In India, VAT is charged by the state governments and varies from states to states.

Points of Difference between VAT and GST

Authority: VAT is charged by the state authority while GST will be charged by the central government.

Purpose: VAT is charged from the manufacturers and suppliers for transactions within the state while GST will be charged from manufacturers and traders whose turnover exceeds a certain limit.

Utility: The inclusion of GST will make the VAT and other indirect taxations useless. From April 1st onwards, GST will subsume a lot of indirect taxes and the trader will have to just pay a single GST at a prescribed rate.

Rate: Earlier, the rate of VAT was determined by various states from 1% to 15%. But GST will be charged on the basis of manufactured goods only. The rate will be anywhere from 5%, 12%, 18% or 28% depending upon the nature of goods and services.

Category: VAT is chargeable on the goods sold while GST will be chargeable to both goods and services at applicable rates.

Tax sharing: When a state government charges VAT, the entire amount goes to its treasury. But when GST will be charged, both the state and central government will get a share on it.

Taxation Records: Accounting procedure of GST will be much simpler than VAT since a unified GST will now have to be filed instead of several other indirect taxes.

Understanding the Various Issues of GST

There are three components to the GST; State GST (SGST), Central GST (CGST) and Integrated GST (IGST). The SGST will cover all state level taxes. Similarly, CGST will subsume all central taxes and the IGST will come to apply only when there is an interstate transaction. All the indirect taxes will be subsumed under a single GST from this financial year onwards.

GST is touted as a unified nation-wide tax but in reality, it has multiple sides as explained above. Unlike central excise, the central government can now get a share on each and every good manufactured within the country through GST taxation.

It is expected that since GST will include a fewer paper works, accounting works and legal formalities – the cost of many products will come down. This will boost the economy and give a lot of relaxation to people as well.


What is the Difference between a State VAT and GST