Tamil Nadu will soon introduce an amendment in the value added tax law that will benefit small dealers opting for compounded rates of tax.

Mr L. Palamalai, Member, Tamil Nadu VAT Monitoring Committee, told participants at a seminar on `Documentation challenges - VAT and service tax', that once the amendment is introduced, the compounded rate of tax would be applicable only on the taxable portion of the turnover for dealers with a turnover of Rs 10 lakh-50 lakh.

The VAT Act now says that the entire turnover would be subject to tax. The amendment will enable traders, on second and subsequent sale, to exclude from taxation the portion of the turnover from items that are exempt under VAT, he said.

Similarly, the Government has also clarified that for taking input credit on closing stock works in progress and finished goods are also covered. Section 88 of the VAT Act, which says `stock of goods held,' now covers finished goods and works in progress for claiming input tax credit, Mr Palamalai said.

Participants at the seminar organised by the CII Institute of Logistics, expressed concern over the elaborate documentation demanded under the VAT.

Mr M.R. Diwakar, Member of the institute and General Manager, Tube Investments, said that the requirement of submitting photocopies of invoices for claiming input tax credit simply means taking huge numbers of copies. A group in Chennai with interests in auto components manufacture has to take 15,000 photocopies of its purchase invoices.

Similarly, Form H that seeks details of the production-cum-stock account simply demands too much information, which would not be available to the company in practice - details such as wastage with the date of wastage, he said.

These contribute to the delay in companies completing the paper work.