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Cash discount

Jimi KR (CA student) (89 Points)

17 January 2013

If Cash discount is allowed to our customers,whether it is calculated on total bill amount or excluding VAT?

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Antony Jacob (FINANCIAL ACCOUNTANT) (30 Points)
Replied 17 January 2013

cash discount is calculated on the total amount .for example if sale value is 1000 and vat is 50 and you are giving cash discount at 1% .you should calculate the amount from 1050 ie 10.50 .cash discount will be 10.50.Vat should be same Ie Rs 50

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Ganesh Nagori (Owner) (29 Points)
Replied 17 January 2013

Originally posted by : Jimi KR
	If Cash discount is allowed to our customers,whether it is calculated on total bill amount or excluding VAT?

Well,

You are free to offer Discounts on either including or excluding VAT, its solely on your decision. But yes, that would be stupidity to offer discount after VAT unless you have strong reasons to do that. There are 2 reasons for not applying VAT before discounts.-

1. If you offer discount after applying VAT you give away more discounted amount (because it also includes a percentage on VAT amount.). Though, it makes no difference if you are opffering a fix amount of discount.

2. Your VAT amount is redusced if it is applied after discount. You know the calculations part. :).

Ands there are no legal clause for this.

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Jimi KR (CA student) (89 Points)
Replied 17 January 2013

Thanks for all replies...

CA DIGANT CHADHA (Academician & Consultant) (195 Points)
Replied 18 January 2013

cash discount is given because of timely payment and it is not given on the commodity you are selling so cash discount will not reduce the amount of goods for vat. but, if there is a trade discount, then it will be reduced for calculation of vat. thanks

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