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What is TAX?
a compulsory contribution to state revenue, levied by the government on workers' income and business
profits, or added to the cost of some goods, services, and transactions.
Value-added taxation in India was introduced as an indirect value added tax (VAT) into the Indian taxation
system from 1 April 2005. The existing general sales tax laws were replaced with the Value Added Tax Act
(2005) and associated VAT rules.
As of 2 June 2014, VAT has been implemented in all the states and union territories of India except Andaman
and Nicobar Islands and Lakshadweep Island.
VAT is a kind of tax levied on sale of goods and services when these commodities are
ultimately sold to the consumer. VAT is an integral part of the GDP of any country.
VAT is a multi-stage tax which is levied at each step of production of goods and services
which involves sale/purchase. Any person earning an annual turnover of more than Rs.5
lacs by supplying goods and services is liable to register for VAT payment payment.
Calculation of VAT:
VAT is actually calculated as the difference between input tax and output tax.
VAT Example:
Suppose Ram owns a restaurant and spends Rs.50,000 towards obtaining raw materials.
Input tax is 10%, so input tax becomes 10% of Rs.50,000 = Rs.5,000
Now after selling the food made by using the purchased raw materials, Ram was able to
make Rs.1,00,000. Supposing 10% output tax, output tax becomes Rs.10,000
So, final VAT payable by Ram comes out to be Rs.10,000 Rs.5,000 = Rs.5,000
Despite state-specific implementations, VAT in India can be divided into four main
subheads.
1% VAT Rate:
For items which tend to be highly expensive, the percentage of VAT applicable needs to
be kept low since otherwise the VAT levied could be too high an amount. For such items,
VAT is kept as low as 1%. Gold, silver and other precious stones as well as precious
jewelry fall under this category of goods. Most Indian states have fixed VAT for these
items at 1% of the amount.
VAT IN TALLY.ERP