What is TIN/CST/VAT/Excise Duty? How to Pay Taxes? Explanation with Example

Query:

How to pay taxes? We have a pharmaceutical marketting company…and given distributorship to another party…kindly describe in details about tax for buying and selling.


Response:
For paying tax, you should have Tin number/ Vat number / Cst Number.

  • TIN stands for Tax Identification Number
  • VAT stands for Value Added Tax
  • CST stands for Central Sale Tax
These three numbers could same or different. Procedure and documentations may vary state to state.

Procedure for paying Sale Tax:

Sales tax accounts, Sales tax/Income Tax Advocates, CA ( Chartered Accountants) will guide you all about process for applying TIN/VAT/CST. Sales tax has to be deposited quarter wise. You can fill sales return by appointing regular accountant or at part time basis through accountants, CA or Advocates etc.

Documentations required for applying TIN/CST/VAT number:

  • Independent premises(Owned or rented)
  • Rent agreement affidavit in case of rented premises
  • Ownership proof copy i.e. Electricity Bill, Landline bill, registry paper etc.
  • Two sureties or securities of one rupees each for Tin and Cst. This can be in form of bank surety bond and already existing firms surety Bond. Amount and type may vary according to Government policies and state wise.
  • Digital picture of premises with proprietor or partner/s or director/s in it.
  • Applicable Fee
  • Affidavit of Proprietor or partner/s or director/s
  • Partnership Deed or Memorandum of Company
  • Any other document asked by sale tax department

Below we are explaining most important taxes, you have to be encountered.

VAT(Value Addes Tax) : It is also known as local tax. It is the tax which is imposed when you will purchase or sell your products within your state. VAT is refundable tax. Purchase tax will be compensated with sales tax. You have to pay tax at your profit only. VAT vary state to state. Some states has 5.25%, some has 4% or some has different. You should confirm it before starting sale and purchase. For example, you will purchase a good at Vat of 5% and value of good is 45/-. Vat will be 45*5%=2.25/-. Total Cost to you is 45+2.25= 47.25/-. You sell it at the rate of 55/- with 5% vat. Vat will be 55*5%=2.75/-. Cost to purchaser will be 57.75/-. Now question is how much vat you have to pay to sales tax department. You have to pay tax at your profit i.e. at 10/-. Vat of 10/- will be 10*5%=0.50/-. If you will deduct tax at your sale and tax at your purchase i.e. 2.75-2.25=0.50/-. You received 2.75/- tax from purchaser and You gave 2.25/- as tax to your vendor. The difference between sale tax and purchase tax is what you have to pay to sale tax department. In case of vat, you costing doesn’t much effected only minor difference occurs.

CST (Central Sales Tax) : When you conduct sale and purchase to/from other states, then you have to pay cst. CST is non- refundable and you have to pay it to sale tax department whether you purchase from other state or you sell to other state. In case of Haryana, it is 2% against C-Form and 5.25% without C-Form for medicinal goods. It may vary state to state because it is 1.5% with C-Form and 4% against C-Form in Himachal Pradesh. You should confirm in your state. For Example, if you purchase from another state at 2% against C-Form at rate of 45/- then tax will be 45*2%=0.90/-. It will be added in your costing because you have to paid it to sales tax department. Now whether you sell it within or interstate, you have to pay selling tax also to sales tax department. If you sell inter state at 2% at 55/- then tax will be 55*2%=1.10/- or you sell it within state/ inter state at 5%, then tax will be 55*5%=2.75/-. You will also have to pay this tax to sales tax department.

Excise Duty: Excise Duty is the tax which is imposed at manufacturing of goods in India for consumption within India. It is applicable to the units which has more than 1.5 crore annual turnover. It may vary state to state. Some state or regions are exempted from excise duty. Generally Excise duty is calculated at 70% of total invoice value according to maximum retail price. Percentage of excise duty may vary state to state. It directly affect your costing. For example, if you purchase goods at 45/- but mrp of product is 150/-. Then excise duty will be calculated at 150*70/100=105. Suppose excise duty is 15%(Including all surcharges). Then you have to pay 105*15/100=15.75/- as excise duty. 

Related: How to calculate MRP/PTS/PTR?


Hope above information is useful to you.

For any suggestion and query, mail us at pharmafranchiseehelp@gmail.com


Related Query:

I started pharma franchisee in Bihar , I face some issue, so I request you to help me on these issue.
Issues are:

  1. I purchased medicine from out side state, they charged 2% cst and 3%as reserved . they told after furnishing C form they reversed that amount. I am semi whole seller, registered with tin vat but not registered with cst . how I generate C form?
  2. How i charged vat on this medicine, i supply medicine to hospital, doctors , shop at different price,, 

Please solve me these issue, 

Response:

  1. With Vat, you can’t generate C-Form, for generating C-Form, you have to apply for CST number in future. If you want to reap the advantage of 2% tax, you have to apply for CST number in future.
  2. When you bill medicines to hospitals, doctors or shop, you have to charge according to Bihar’s Government Vat. It may be approximately 5% or 6%. You can also confirm to few other distributors. Different prices doesn’t effect at vat. You will have to add vat at total billing value of invoice.
Hope this information will be helpful to you…

Published by

Ajay Kamboj

Full Time Blogger, Part Time Entrepreneur and Partial Time Helper for New Start-UP's in Pharmaceutical, Ayurvedic and Nutraceutical Sector. Contact him at pharmafranchiseehelp@gmail.com

One thought on “What is TIN/CST/VAT/Excise Duty? How to Pay Taxes? Explanation with Example”

  1. Pingback: How to start wholesale business in Pharmaceutical? Procedure to get stockist/Distributor/c&f license in pharmaceutical sector? - Pharma Franchise Help

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