Value Added Tax (VAT) is a sales tax levied on the sale of goods and services. VAT is an indirect tax, in that the tax is collected from someone other than the person who actually bears the cost of the tax. It is levied on the added value that results from each exchange. Value Added Tax or VAT is a national sales tax on goods and services, which is levied by many countries around the world. Today around 135 countries utilize value added tax. Almost all the countries in the world rely upon taxes as the major source of revenue.
In India, VAT replaced sales tax on 1 April 2005. Of the 28 Indian states, eight did not introduce VAT. Due to the federal nature of the Indian constitution, the states do have the power to set their own VAT rate.