Cash discount before vat or after vat

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Ajit Singh (Querist)

17 October 2016 Dear Sir,
Kindly suggest on this.
we have Given cash discount as per this example.
Total Price - 100
Trade Discount(10%) - 10(Now value became 90(100-10)
Cash Discount(2%) - 1.80 (Now value became 88.20(90-1.80)
Vat Applied 15% - 13.23 (Now Value Became 101.43(88.20+13.23)

Is it better way for accounting or vat will be apply before reduction of cash discount????

Rajat Aggarwal

Rajat Aggarwal (Expert)

17 October 2016 VAT will be applicable before allowing cash discount.

Ajit Singh

Ajit Singh (Querist)

17 October 2016 On which rules it is mandatory that vat will be applicable before reduction of cash discount? How can we say trade discount or cash discount is different?Kindly suggest any book(Direct or Indirect Taxation). So that i can be clear on this topic.

Rajat Aggarwal

Rajat Aggarwal (Expert)

17 October 2016 Trade discount is a discount given by seller on list price of goods whereas
cash discount is given on invoice value likely to be given for quick payment from buyer.

further trade discount is not to be shown separately in books of accounts and cash discount is to be shown as expenses.

Ajit Singh

Ajit Singh (Querist)

17 October 2016 I have shown both the discount(Trade and Cash Discount) on invoice. as example given on above query.

Rajat Aggarwal

Rajat Aggarwal (Expert)

17 October 2016 Cash discount is given at the time of recieving payment , so how you show cash discount in invoice. only trade discount is shown in invoice.

Ajit Singh

Ajit Singh (Querist)

18 October 2016 As per company Payment terms & policy, we assume dealers will pay in the certain time which agreed.that's why we are Passing cash discount in invoices. if sometimes dealers fail to pay on or before the due date. We making a debit entry of cash discount to the dealers and charging vat amount in debit note. kindly suggest this process is right as per rules or not?

Ajit Singh

Ajit Singh (Querist)

19 October 2016 Mr. Rajat Agarwal, I am waiting for your reply. Please tell me any book name for better clarify on this matter. it will be helpful for me.

Rajat Aggarwal

Rajat Aggarwal (Expert)

21 October 2016 your process is not right as i clarify cash discount is given at the time of payment so how you decrease the value of goods by cash discount. it also effect the govt. revenue as you decrease the value of goods so its better not to show cash discount in invoice as it is wrong practice.

Rajat Aggarwal

Rajat Aggarwal (Expert)

Ajit Singh

Ajit Singh (Querist)

21 October 2016 Sir, Please let us know how we are decreasing the government revenue as it is the process to sell any finished goods. if we are passing the output vat to any dealers or distributor. then they will take it as input vat credit to calculate their liability of output vat. Kindly reply us.

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