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credit of tax paid on capital inputs in vat

sanju (Accountant) (348 Points)

09 June 2011

can any body pls expalin me with a simple illustration. in consumption variant how taxes paid on capital inputs get credited ? pls explain with illustration. thanks in advance

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U S Sharma (glidor@gmail.com) (21056 Points)
Replied 09 June 2011

Example :value of capital goods 10000+ vat 1000, and 50% credit available in 1st year and 50% in subsequent year

capital goods a/c dr 10000

Vat credit ......................500

Vat on capital goods ..500

to cash / bank .................................11000

in next year

vat credit a/c dr ....................500

to vat on capital goods .......................500

sanju (Accountant) (348 Points)
Replied 10 June 2011

thank u vary much for your responce sir, but what i asked is if we produce the goods wich are atracted by vat then we can claim vat paid on inputs ( raw materials), then what about vat paid on capital inputs( machinaries) , how a manufacturere can claim vat paid on capital inputs on sale of final product pls explain me sir

C.A. Sandeep Wawhal (Chartered Accountant PGDFM BCom.) (1823 Points)
Replied 10 June 2011

Sanju, Full set off available for Vat on Capital Input Goods, and 50% credit method is for Excise capital Input Credit and not for Vat inout.

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CA Mahesh (...) (70 Points)
Replied 10 June 2011

Hi ...

Sanju

For the VAT credit there are diffrent rule in the diffrent states, so if u in the Maharashtra State then ,

1) If the input capital items is Plant & Machinery , or any other items which is directly used in the manufacturing of the final product , that can be allowed in full in the year in which u have purchased.

2) if the input capital items is Furnitures etc. then it will allowed after 3% retention ( Means if purchase @ 12.5% MVAT then 9.5% is setoff and 3% is capitalised to the furniture's cost)

3) If the input items is motorcar for the use of the em.ee or directors of the company , then setoff is nt allowed means fully capitalised.

4) and if the input items is any immovable items i.e fixtures , plasters to the building etc then also set of not allowed means fully capitalised

As per the excise , it will the same entry as mentioned by the U S sharma in the first answer.

Thanks & Regards

CA Mahesh

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 11 June 2011

VAT input credit is an asset account in balance sheet,

when we purhcase any input or capital goods, then the purchase value is reflected in purchase account / capital goods ( fixed asset ) account, and vat input credit goes to "vat input credit account"

when we make sales of goods , sales account goes to "sales in P/L account" and vat is debited from "VAT input credit"

at the end of month, vat input credit account is checked, if credit balance is there i.e excess input credit available after set off vat liability on sales, then same is available for next month, but if it is debit balance, then debit balance is paid in cash/ netbanking to vat department, and the account is neutralized to zero.