VALUE ADDED TAX

Presented by -

VAT

VAT is a multi-stage tax that is levied on goods across each stage of transaction tax paid at each stage of Value addition tax reform measure to abolishes the double taxation system in India Consumption tax Provision of a threshold limit for registration of VAT

Why VAT?

Cascading effect Reduction tax burden Reduction in price level

Special Cases Of Levy and Collection

1.) No Tax: small dealer with gross annual turnover not exceeding the specified limit are not liable to pay tax.

2.)Compounded Rate Of Tax: Has an option to pay tax at small percentage ,Composition scheme.

Advantages of VAT Over Sales Tax

1.) Simple and self operative. 2.)Uniformity 3.)Transparent and Progressive system 4.) Self administration 5.) Larger Tax base 6.) Dealer, an agent, for collection and payment of tax to government.

HOW VAT OPERATES?

Rs. 100 @12.5%

B
VAT=112.50-100 VAT=Rs. 12.5

Rs.160,@12.5% VAT=20-12.5 VAT=Rs. 7.5

VAT AT EACH POINT OF SALE

Dealer 1 Manufactu rer Distributor 100 Whole seller Retail to Consumer 50 150 15 165 10 5 Purchase Value power Addition 2 3 Sales Price 4(2+3) VAT @ 10% of 4 5 Total (4+5) 6 Set off 7 Net tax paid(5-7) 8

100

100

10

110

10

150

50

200

20

220

15

200

60

260

26

286

20

VAT CALCULATED ON SALES PRICE

VAT is chargeable on sale price

Cost of 500 units @100/- per unit Excise duty Octroi Duty Packing and Forwarding Total 50,000 5,000 1,000 1,500 57,500

VAT is calculated on Rs.57,500/- and not on Rs.50,000.

VARIANTS OF
VA L U E A D D E D TA X

VAT

THREE VARIANTS

1 2 3

GROSS PRODUCT VARIANT

NO SET OFF ON CAPITAL ASSETS

INCOME VARIANT
NO SET OFF ON CAPITAL ASSETS BUT DEPRECIATION ALLOWED AS DEDUCTION

CONSUMPTION VARIANT
SET OFF ON CAPITAL ASSETS BUT DEPRECIATION NOT ALLOWED AS DEDUCTION

VA L U E A D D E D TA X

GROSS PRODUCT VARIANT

Calculating Tax Liability
Particulars Local Sales @ 12.5% Local sales @ 4% Interstate Sales @ 4% Local Purchases @ 12.5% Amount 35,00,000 10,00,000 20,00,000 25,00,000 Tax

4,37,500 40,000
80,000

(3,12,500)

Local Purchases @ 4%
Plant Purchased @ 12.5% Depreciation on Plant @ 15%

10,00,000
50,00,000 7,50,000

(40,000)
6,25,000 7,50,000

T O TA L VAT 1,25,000 PAYA B L E on inter-state purchases is not available for set-off Note: Any tax paid

VA L U E A D D E D TA X

INCOME VARIANT
Calculating Tax Liability
Particulars Local Sales @ 12.5% Local sales @ 4% Interstate Sales @ 4% Local Purchases @ 12.5% Amount 35,00,000 10,00,000 20,00,000 25,00,000 Tax

4,37,500 40,000
80,000

(3,12,500)

Local Purchases @ 4%
Plant Purchased @ 12.5% Depreciation on Plant @ 15%

10,00,000
50,00,000 7,50,000

(40,000)
6,25,000

(7,50,000)

T O TA L VAT (6,25,000) PAYA Bset-off inter-state sales tax liability against the Refund LE Note: One can

VA L U E A D D E D TA X

CONSUMPTION VARIANT
Calculating Tax Liability
Particulars Local Sales @ 12.5% Local sales @ 4% Interstate Sales @ 4% Local Purchases @ 12.5% Amount 35,00,000 10,00,000 20,00,000 25,00,000 Tax

4,37,500 40,000
80,000

(3,12,500)

Local Purchases @ 4%
Plant Purchased @ 12.5% Depreciation on Plant @ 15%

10,00,000
50,00,000 7,50,000

(40,000)
(6,25,000)
7,50,000

T O TA L VAT (5,00,000) PAYAonlyE the asset which is put to use in the Current Year B L for Note: Set-off

VA L U E A D D E D TA X

Methods of Calculation of VAT

1)

Addition Method
Invoice Method Subtraction Method

2)

3)

1) ADDITION METHOD

(Mainly used with Income variant of VAT)

Cost of raw materials Direct Expenses Administration expenses Selling & Distribution Expenses Financial Expenses Profit

100,000 50,000 15,000 12,500 8,500 14,000

Total Sales Price

200,000

VAT Payable @ 12.5% on 200,000

25,000

2) INVOICE METHOD
VAT Liability Manufacturer/ First seller in the state sells goods to distributors for Rs. 5000 VAT is 12.5% Distributor sells goods to Wholesale Dealer at Rs. 5,500 VAT @ 12.5% will be Less Input Credit Tax Payable

625

625

688

625

63

Wholesale Dealer sells goods to Retailer at Rs. 7000 VAT @ 12.5% will be
Now Retailer sells goods to consumer at Rs. 8000 VAT @ 12.5% TOTAL

875

688

187

1000

875

125

3188

2188

1000

3) SUBTRACTION METHOD
Tax = T x R 100 + R T = Taxable Turnover (Inclusive of VAT) R = Rate of Tax Taxable Turnover (Inclusive of VAT) Manufacturer sells to Distributors at Rs. 5000 and 5000 x 12.50 = 555.55 VAT rate is 12.5% 100 + 12.50 Distributors sells the goods to Whole seller at Rs. 5750 5000 VAT Tax @ 12.5% 555.55

750 750 x 12.50 = 83.33 100 + 12.50 600

83.33

Whole seller sells to retailer at Rs. 6350

600 x 12.50 = 66.66 100 + 12.50

66.66

Retailer sells to Consumer at Rs. 8500

2150 x 12.50 = 238.88 100 + 12.50

2150

238.88