What does value-added tax entail in India?

On April 1, 2005, VAT replaced the state level sales tax in the majority of the states in India.

Under the VAT regime, the VAT paid on goods purchased within the state is eligible for VAT credit. The input VAT credit can be utilized against the VAT/Central Sales Tax payable on the sale of goods. This ensures that only the value addition is taxed. Currently, there is no VAT on imports into India. Exports are zero-rated. This means that while exports are not charged VAT, VAT charged on inputs purchases and used in the manufacture of export goods or goods purchased for export is available to the purchaser as a refund. State VAT is charged at varying rates: 1 percent, 4 percent, 5 percent and 20 percent. Turnover thresholds have been implemented so as to keep small traders out of the VAT regime. A tax under a composition scheme, at a lower rate, may be levied on small traders in lieu of the VAT.