querry about VAT

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

1. Lets say your TAX PERIOD is 3 MONTHS
2. Assume TAX RATE @ 10%
3. 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.