Difference Between VAT and Excise Duty

Edited by Diffzy | Updated on: April 30, 2023


Difference Between VAT and Excise Duty

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Taxation is practiced in practically every country on the planet. The most prevalent motive is to produce income to cover government expenses. Different forms of taxes exist, each with its own set of rates and methods for funding the government. Individuals are subject to some taxes, while products are subject to others. Taxes can be imposed at the federal, municipal, and state levels. Understanding the differences between various forms of taxes is critical to comprehending our country's infrastructure. VAT and excise duty are two forms of taxes levied on products.

VAT vs Excise Duty

Any government that wishes to function efficiently needs income to fulfill its tasks. These funds are raised by the government through the collection of various types of taxes. These are classified into types, direct and indirect taxes. Income tax is a direct tax, and both, excise and VAT are indirect taxes. Excise and VAT account for the majority of government revenue. While excise and VAT are charged on a variety of commodities, in general, excise is collected on produced goods, and VAT is levied on the sale of a product or service. On the same commodity, both excise and VAT may be due. This is collected through differentpeople. The manufacturer pays the excise duty while the vendor collects VAT from the final customer.

In reality, excise and VAT account for the majority of the government's earnings. The two taxes, however, are not the same. The manufactureer doesn't have to pay excise duty if he does not sell the product and consumes it himself. He must, however, pay the excise tax since he sells it at a higher price. VAT is paid by the end consumer in the chain, not by the vendor who buys the items from the producer. The excise duty has already been paid by the seller to the manufacturer, who then deposits it with the government.

Difference Between VAT and Excise Duty in Tabular form

Parameter of Comparison VAT Excise Duty
Terms Tax is levied on products as they transit from the place of manufacture to point of sale. A tax has been imposed on the manufacture of stocks.
Imposed After the product has reached the point of the final sale. Following the completion of the product.
Fund by Customers who purchase the item. The business that produces the goods.
Implementation The method and time of the collecting. Specific and ad valor.
Examples Candy, toothpaste, soap, and shoes. Tobacco, fuel.

What is VAT?

Value-added tax (VAT) is sometimes known as a consumption tax. It is paid by the customer, not the seller, who has already paid the manufacturer's excise duty. The vendor, on the other hand, must pay the difference between these two sums and is permitted to keep the remainder to cover the input tax he has already paid. VAT is similar to sales tax in that it is paid by the final consumer. It differs from sales tax in that it is only collected once from the ultimate customer in this chain. The VAT strategy has eliminated sales tax avoidance by providing an incentive to the seller when he charges VAT to the end customer.

Types of VAT

There are three different types of VAT:

  • VAT Intake Type - A consumption tax is a tax levied on the expenses of goods and services consumed. Underutilization type VAT, all resource goods purchased from other enterprises are excluded from the tax base in the year of purchase, but depreciation is not deducted from the tax requirement base in subsequent years. The revenue spent on intake is the tax base for such a tax.
  • VAT revenue type - The income-kind VAT does not exclude resources and goods purchased from other businesses from the tax base in the year of purchase. However, this kind excludes depreciation from the tax requirement basis in future years. On both input and internet financial investment, the tax liability is reduced.
  • Kind GNP VAT - The cost of resource items acquired from other businesses is not deducted from the tax obligation base on the year of purchase. It also prevents the deduction of depreciation from the tax base in the following years. Intake and gross investment are both subject to taxation. The GDP serves as the basis for this form of tax requirement.

It is the amount of cost added to a product after it has reached the end of the trading process. Over 160 nations throughout the world use the VAT system. The fundamental goal of the value-added tax is to create money for the government from all types of items, both online and offline. The consumer is solely responsible for paying VAT on the finished product, not the raw materials used to make it. Because the corporation has already paid VAT for the raw materials, it pays the cost by adding it to the product's price as compensation. On some occasions, some individuals question the VAT system. They claim that this system would solely benefit rich families and that low-income households will have difficulty paying these taxes. The state determines the tax rate as a proportion of the final product. It is carried out in two ways:

  1. Collection technique
  2. Collection schedule

The vendor sends the customer an invoice with the tax amount on it in this form of collection. The other option is to create a generic invoice that is based on the value contributed to the goods. A deposit is made on the payment of the products, and the tax is recorded according to the fund receipts, in terms of collection timing.

Exemptions from VAT Collection

Value Added Tax is not imposed on exempted products. The government sets a threshold for small company firms from time to time, and if your business falls within that category, you won't have to pay VAT. Exports are free from paying Value Added Tax, which can be sought for a refund if paid at any time throughout the transfer of goods.

VAT Payment Method

Output Minus Input is used to calculate VAT. VAT collected from customers is referred to as output, while VAT paid is referred to as input. As a result, an amount of VAT is paid to the government after subtracting input from the output.

What is Excise Duty?

Excise duty is a government-imposed tax on commodities produced for domestic use. It's not the same as customs, which is a charge paid by buyers when they import products from other nations. Excise duty is thus an inland tax. This is an indirect tax in which the producer sells the product at a higher price than the cost of production, recouping the tax paid on its manufacturing. Excise is always added on top of the VAT that the end-user pays. Assume a company creates a product that costs Rs 100. He must now pay the necessary excise duty on the commodity before selling it to a merchant for a higher price, say Rupees 120. When the vendor sells it, he will now collect VAT from the consumer. Both of these taxes are levied on the same item.

Excise Duty Classifications

The following are the three main types of central excise charges that exist in India:

  • Basic - Indian excise taxes are imposed under section 3 of the 'Central Excises and Salt Act' (CESA) of 1944 on all excisable products, excluding salt, that are manufactured or produced in India at the rates stipulated in Schedule 1 of the CETA.
  • Additional - Section 3 of the 'Additional Duties of Excise Act' of 1957 allows excise duty to be charged and collected on the products mentioned in the act's schedule. This tax is levied jointly by the federal and state governments in place of sales tax.
  • Special - Special Excise Duty is imposed on all excisable items that are subject to taxes, according to Section 37 of the Finance Act of 1978, and is similar to the Basic Excise Duty imposed under the Central Excises and Salt Act of 1944. As a result, the Finance Act specifies whether the Special Excise Duty would be imposed and eventually collected during the relevant financial year each year.

Excisable Commodities

The phrase 'excisable goods' refers to items that are listed as being subject to excise duty in the first and second schedules of the Central Excise Tariff Act, 1985, and includes salt.

Excise Duty Responsibilities

Producers and manufacturers are always responsible for paying taxes and excise charges. There are three categories of manufacturers:

  1. Those who make the things in question themselves
  2. Those who obtain things are created via the use of hired labor
  3. For those who obtain commodities produced by third parties.

Excise duty is the tax rate applied to commodities at the time of manufacture. Customers may not be able to view this amount since the corporation is required to pay it to the excise departments in accordance with government infrastructure. As a result, manufacturers raise the price of finished goods to cover the additional costs. It is a company tax that must be paid in addition to other taxes such as income tax. Excise charges bring in a tiny amount of money for the government. It applies to certain products such as cigarettes, alcohol, and gasoline. It is carried out in one of two ways:

  1. Ad valorem taxation
  2. Specific

There is a predetermined proportion of some sorts of items in ad valorem. Purchases with a high social cost, such as plane tickets, cigarettes, and alcohol, are subject to a set amount. Excise taxes, as the name implies, tack on a certain amount of fees to a commodity, such as cruise ship passengers, fuel, and beer.

Main Differences Between VAT and Excise Duty in Points

  • VAT is a tax levied on products as they travel from the production stage to the point of sale, whereas excise duty is a charge levied on things as they are manufactured.
  • Tobacco, alcohol, airline tickets, and motor fuel are examples of VAT items, whereas tobacco, confectionery, soap and toothpaste, and shoes are examples of excise tax products.
  • VAT is applied after the product has reached the point of the ultimate sale, whereas excise duty is applied immediately after the product is made.
  • The method of collection and the timing of collection are used to apply VAT. The ad valorem approach and the particular method are used to calculate excise duties.
  • VAT is paid by the customers who purchase the product, whereas excise tax is paid by the manufacturer.


The VAT Book is a legal document that lists all of a company's value-added tax (VAT) transactions in chronological order. Tax obligation postings, which often combine deals with the same tax obligation percentage, can be used to organize purchases.



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"Difference Between VAT and Excise Duty." Diffzy.com, 2024. Mon. 17 Jun. 2024. <https://www.diffzy.com/article/difference-between-vat-and-excise-duty-1104>.

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