Treatment of discount

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deepak sharma (Querist)
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21 December 2010 hi, I want to know that whether vat charged on basis value or after deduction of discount e.g. Mr A ( Retailer) sell a product
situation A
basic Price 1000
Less Discount 20% 200
Balance 800
Vat @ 5 % on 800 40
Total Value 840

situation B
Basis price 1000
Less Discount 20% 200
Balance 800
Vat @ 5 % on 1000 50
Total Value 850
which situation is correct please suggest me this type of discount is cash discount or trade discount

CA. Dashrath Maheshwari

CA. Dashrath Maheshwari (Expert)
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21 December 2010 First one is correct.. VAT means Value Added Tax.. Value added in this question will be calculated based on 800/- as 200/- is already gone.

deepak sharma

deepak sharma (Querist)
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21 December 2010 But Sir , what type of discount this, cash or trade, can you write me the treatment of cash discount in relation to vat changeability

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