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querry about VAT

rahul (student) (151 Points)

16 May 2010

Q1:what is addtion method of VAT?

Q2: what is the difference between INPUT VAT and OUTPUT VAT?

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4 Replies

Ram Avtar Singh (Nagari Sultanpur U.P.Delhi) (14497 Points)
Replied 16 May 2010

Introduction of VAT

It is a tax on consumption. The final and total burden of the tax is fully and exclusively borne by the domestic consumer of goods and services. It being a tax on domestic consumption, no VAT is charged on goods exported. It is an alternative mechanism of collection of Tax. In many respects it is equivalent to a last point retail sales tax. Value added tax is, therefore, a muti-stage sales tax levied as a proportion of value added (i.e. sales minus purchaes, which is equivalent to wages plus profits). To illustrate,

Example 1

Lets say your TAX PERIOD is 3 MONTHS
Assume TAX RATE @ 10%
In these three months

You purchase goods of a value = Rs 1,00,000

Your INPUT TAX CREDIT = Rs 1,00,000 X 10 / 100= Rs 10,000

You make sales worth Rs 3,00,000

OUTPUT TAX on sales = Rs 3,00,000 X 10/100 = Rs 30,000

NET TAX = Rs (30,000 10,000) = Rs 20,000

You need to deposit Rs 20,000 in this TAX PERIOD

Example 2

Example 3

This indicates that VAT is collected at each stage of production and distribution process and in principle, its burden falls on final consumers only. Thus, it is a broad-based tax covering the value added of each commodity by a firm during all stages of production and distribution.

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Varun.T.K (CA Final, CS Executive) (365 Points)
Replied 16 May 2010

Q1: Addition method:

Under this method, all the factor payments(including profit element) are aggregated. Then, on this value addition, corresponding VAT rate is applied.

Q2: Input Vat and Output Vat:

Output Vat is the collected amount of VAT, on sales gross amount, which we are liable to pay to the department of sales tax.

Input Vat is the amount of purchase tax amount of VAT(elegible items) which we can set off against our output tax liability so that only net VAT amount need to be paid.

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