Write the differences between VAT and GST

GST is one of the major reforms in Indian taxation system. The main aim is to remove the cascading effect. Cascading effect is nothing but double taxation.

GST is value addition tax which is imposed on goods and services (production, distribution and consumption).

On the other hand value added tax (VAT) is an indirect tax imposed at every single stage of goods (manufacturing, distribution) on incremental value.

Value added tax

Value added tax (VAT) is levied by the state government at every single level of goods production and distribution. So the VAT system is a multiple point tax.

In this tax system, purchase of goods are allowed input tax credit (tax paid at previous stages are deducted in the next tax liability). To get tax credit under this system, dealers should obtain registration.

Firm value addition is calculated as the difference between proceeds and cost of purchases.

Some of different VAT rates are 0% (agricultural goods), 1% (gold and silver), 4% (raw materials/input in manufacturing and capital goods), and 20% (luxury items) Goods and service tax (GST)

Goods and service tax (GST) is the based value added tax which is charged on goods and services (production, sale and consumption). It eliminates the cascading effect (no other tax is levied when GST applies).

In this final, the consumer bears tax imposed by the supplier (last in chain of distribution).

In India, dual GST (CGST AND SGST) is implemented. CGST is nothing but tax levied by the central government on intrastate sales whereas SGST is nothing but tax levied by state government on interstate services.

We have some union territories also, so tax levied in union territories is called IGST. Slab rates are fixed in GST (5%, 12%, 18% and 28%)

Indirect taxes come under various GST are as follows −

  • CGST − Service tax, excise duty and surcharge and cess
  • SGST − Octroi tax, luxury tax, VAT and surcharge and cess
  • IGST − Central sale tax


The major differences between Value Added Tax (VAT) and Goods and Services Tax (GST) are as follows −

Value Added Tax (VAT)Goods and Services Tax (GST)
Charges whenever value is added to a product.Charged on sale and consumption on goods/services.
Taxed on sale of Goods point.Taxed on supply point.
Offline payment system.Online payment system.
Taxation based on summary.Taxed based on transactions.
Seller state collects the revenue.Consumer state collects revenue.
Excise duty is levied on manufacture.No excise duty.
Input tax credit is not applicable.Input credit tax is applicable.

Updated on: 17-Jul-2021


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