Value Added Tax (VAT) is a consumption-based tax system in India that is imposed on the value added to goods and services at each stage of production and distribution.
VAT is imposed on the sale of goods and services within the state, and is collected by the state government. The VAT rate in India varies from state to state and can range from 0% to 30%.
VAT replaced the earlier sales tax system in India in 2005, in an effort to make the tax system more efficient and to reduce tax evasion. Under the VAT system, registered dealers are able to claim credit for the VAT paid on inputs (goods and services used in their business) against the VAT charged on their output (goods and services sold). This helps to reduce the cascading effect of taxes and makes the tax system more efficient.