How the tax liability will be claculated

This query is : Resolved

CS RAJESH C.CHOUDHARY (Querist)
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29 November 2012 One of my Client whose MVAT Registration is done as Wholesaler ( Reseller) of Spices Powder in the Month of July, 2012. From Sep, 2012 he has started / added small retail business of Kirana Item at the same Place of business. So accordingly we have intimated the department to make amendment in the commodity traded by the dealer.
Now my query is how the claim will be set off? Do we need to maintain separate books of accounts for wholesale and retail?
How the tax liability will be arrived at as far as the retail business is concern?

@VaibhavJ

@VaibhavJ (Expert)
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29 November 2012 Hi,

Is your client is dealing in Wholesale & Retail both?

Thanks//Vaibhav

CS RAJESH C.CHOUDHARY

CS RAJESH C.CHOUDHARY (Querist)
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30 November 2012 yes sir i have mentioned already in query

Message likes : 1 times

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 When dealing with VAT (Value Added Tax) or its successor GST (Goods and Services Tax) in India, managing the tax liability for both wholesale and retail activities requires careful consideration. Here's a detailed breakdown of how to handle tax liability and set off claims when operating both wholesale and retail businesses:

### **1. **Maintaining Separate Books of Accounts**

**1.1. **Requirement:**
- **Separate Books:** It is advisable to maintain separate books of accounts for wholesale and retail activities. This helps in clearly tracking the sales, purchases, input tax credits, and tax liabilities for each segment of your business.
- **Segregation:** Separate accounting will facilitate accurate reporting and compliance, especially during audits or when filing returns.

### **2. **Claim Set-Off and Tax Liability Calculation**

**2.1. **VAT Set-Off:**
- **Input Tax Credit (ITC):** Under VAT, you can claim input tax credit on purchases made for wholesale business. This credit can be set off against your output tax liability for wholesale sales.
- **Retail Business:** For retail sales, the VAT collected on sales is payable to the department, and you may not be able to claim ITC on the retail sales if the input VAT on purchases for retail is not separately identifiable.

**2.2. **Retail Sales Tax Liability:**
- **VAT on Retail Sales:** VAT on retail sales will be calculated based on the VAT rate applicable to the retail items sold. Ensure to apply the correct VAT rate as prescribed for retail items.
- **Sales Tax Payable:** The sales tax payable on retail sales is determined by applying the VAT rate to the sales value of the retail items.

**2.3. **Example Calculation:**

Assume you have the following details:
- **Wholesale Purchases:** ₹10,00,000 with VAT of 5% = ₹50,000
- **Retail Sales:** ₹15,00,000 with VAT of 5% = ₹75,000

**VAT Calculation for Wholesale:**
- **Input VAT:** ₹50,000 (from wholesale purchases)
- **Output VAT:** ₹75,000 (from retail sales)
- **Net VAT Payable:** ₹75,000 (output VAT) - ₹50,000 (input VAT) = ₹25,000

**2.4. **Amendments and Compliance:**
- **Informing Department:** Ensure that you have properly informed the department about the change in business activities and commodity traded.
- **Filing Returns:** File VAT returns with accurate details of both wholesale and retail sales. Ensure to separate and report the input VAT and output VAT appropriately.

### **3. **GST Considerations (Post-GST Implementation)**

If the business operates under GST (after July 1, 2017), the principles are somewhat similar but with updated procedures:

**3.1. **GST Registration and Compliance:**
- **Unified Registration:** Under GST, it is possible to manage both wholesale and retail operations under a single GST registration. However, maintaining separate books for different business segments is still recommended.

**3.2. **GST Input Tax Credit (ITC):**
- **Claim ITC:** You can claim GST input tax credit on purchases used for both wholesale and retail activities, subject to the conditions and restrictions under GST law.

**3.3. **GST Liability Calculation:**
- **GST on Sales:** Calculate GST on the sales of goods at the applicable rates and set off the input tax credit on purchases.

**3.4. **Example Calculation:**

Assume:
- **GST Rate:** 18%
- **Wholesale Purchases:** ₹10L with GST = ₹1.80L
- **Retail Sales:** ₹15L with GST = ₹2.70L

**GST Calculation for Wholesale and Retail:**
- **Input GST:** ₹1.80L
- **Output GST:** ₹2.70L
- **Net GST Payable:** ₹2.70L (output GST) - ₹1.80L (input GST) = ₹90K

### **4. **Consult a Tax Professional**

Given the complexities involved, particularly with transitioning from VAT to GST, consulting with a tax professional or accountant is highly recommended. They can provide specific guidance based on your business operations and ensure compliance with all applicable tax regulations.

### **Summary**

- **Maintain Separate Accounts:** Keep separate books for wholesale and retail activities.
- **VAT Set-Off:** Claim VAT credit on purchases for wholesale and calculate VAT payable on retail sales.
- **GST Considerations:** For GST, manage ITC and GST payable appropriately, and ensure compliance with GST regulations.

By following these guidelines, you can effectively manage your tax liabilities and ensure compliance with VAT or GST regulations.