.

PROJECT CHECKING DETAILS

ROLL NO.
CRO NO.
BATCH NO.
PROJECT
NAME
TOTAL
MARKS
OBTAIN
MARKS
STUDENT
SIGNATURE
FACULTY
SIGNATURE
25
CRO0466081
004
VAT
Rohit tara
SURAJ SHARMA
VAT is a tax which is levied on
intra state sales that is, sales made
within the state.

Vat is levied on the amount of value
addition made i.e, increase in value of
goods at each stage of production.

Value added = Sale price Purchase
price
WHAT IS VALUE ADDED TAX?
INPUT TAX, OUTPUT TAX AND INPUT TAX CREDIT
INPUT TAX: is the tax paid or payable in the ordinary course of
business on purchases made from registered dealer of the state.

OUTPUT TAX: is the tax charged or chargeable under the act,
by a registered dealer on sales made by him in the ordinary
course of business

INPUT TAX CREDIT: means setting off the amount of input tax
paid by registered dealer against the amount of his output tax.

WHEN IT IS ALLOWED:
I. It is allowed only to a registered dealer
II. It is allowed only if purchases are made from registered
dealer
III. It is allowed both to manufacturer and retailer
IV. It is allowed on intra-state purchases only. Purchases from
outside the state is not allowed

Historical background of vat
VAT was proposed by Dr. Wilhelm
Von Siemens (1919)

Due to its beneficial effects, a full-
fledged Vat was initiated first in
brazil in mid 1960s, then in European
countries in 1970s

Since Vat is less complex and
revenue generating, therefore it has
adopted by almost all countries that
is 130 countries .
PRESENT POSITION IN INDIA
Present position in India
Haryana was the first state to introduce
vat on 1-4-03

It has been adopted by almost all states
in India.

The general rates of vat are 0%, 1%, 4%,
12.5% with no additional tax or surcharge.

Vat has replaced many taxes like local
sales tax, turnover tax etc.
FIRST POINT TAX : Sales tax is levied on first sale only. It is very easy and
there is less scope for tax evasion as there are small number of large
manufacturers which can be easily trapped.

LAST POINT TAX: Sales tax is levied at the stage of last sale i.e., when
goods are finally sold to consumer. It is a complex system as there are large
no. of retailers in India and some do not maintain accounts.

MULTI POINT SALES TAX : Sales tax is applied at every stage on full price.
This lead to high cascading effect and higher final cost to consumer since no
set off is allowed.

MULTI POINT SALES TAX ON VALUE ADDITION MADE : Sales tax is
levied at each stage but only on the value addition made. This prevents
cascading effect.

GOODS UNDER VAT
Gross Product
Variants
Income variant
Consumption
Variant
VARIANTS OF VAT
GROSS PRODUCT VARIANT

Under this variant , tax is levied on all sales but credit/set off can be
availed only of VAT paid on raw material/inputs.

VAT credit/set off shall not be allowed on capital goods.

MERITS-
1) Helps in preventing cascading effect since credit of input is
allowed
2)reduces working capital requirement

DEMERITS-
Set off is not allowed for VAT paid on capital goods, therefore VAT
will be included in cost of capital goods, thereby increasing final
cost to consumer.
INCOME VARIANT
Under this method, Vat is levied on all sales and credit/set off is allowed of
VAT paid on all raw materials.

Vat can be claimed as credit on capital goods in full but it shall be utilised in
pro rata manner i.e., in the ratio of depreciation

MERITS-
Same as gross product variant.

DEMERITS-
Amount of credit allowable is uncertain as method of computation of
depreciation and useful life of asset is also uncertain.

CONSUMPTION VARIANT
Under this method, VAT is levied on all sales and 100%
credit is allowed of VAT paid on all raw materials and
inputs.

Further, 100% credit and set off can be claimed for input
VAT paid on capital goods

MERITS-
No cascading effect
Reduction in working capital requirement
Tax liability not affected due to method of production
Tax administration simple and easier
It is widely used and accepted

Methods
Invoice
Method
Subtraction
Method
Direct
Subtraction
Method
Addition
Method
INVOICE METHOD-
Also known as TAX CREDIT
METHOD or VOUCHER
METHOD
Under this, tax is levied on
full sale price, but credit is
given of tax paid on
purchases & tax is levied on
value added only.
Under this method, tax credit
cannot be availed until and
unless invoice is produced.

ADDITION METHOD-
This method is aggregate of
all factor payments such as
wage,intrest etc. to arrive at
total value addition & then
tax is calculated
VAT = value added* tax rate
VALUE ADDED=depreciation
of building+hire charges
+intrest+wages+other
expense+profit
SUBTRACTION
METHOD-
Under this method, the
purchase price is deducted
from selling price and tax
is paid on the net amount
only i.e., VALUE ADDED
Thus when VAT is paid on
the net amount dealers
margin is disclosed.
This method is unpopular
and cumbersome
ADVANTAGES OF VAT
No cascading effect: VAT prevents cascading effect as it
allows dealer the credit of tax paid on raw material

Better accounting system: as the maintenance of records &
purchase invoices is necessary in order to avail the credit of
tax paid on purchases

Effective audit: VAT leads to better accounting system as the
maintenance of records is necessary and thus it leads to
effective audit

Effect on retail price: VAT reduces prices in long run &
eliminates cascading effect & also improves working capital
and cash flows

Self-Assessment: Dealer has to self-assess his tax liability &
also there are very less procedural formalities of forms etc.

Maintenance of detailed accounting records:
VAT system requires maintenance of detailed accounting
records which increases accounting costs. Such cost may not be
affordable to small dealer.

Lack of uniformity in VAT system:
is one of its key deficiencies. Differences also arise on account
of different exemption

Increase in administration cost:
administration cost to the state has increase in number of
dealers registered under VAT


COMPOSITION SCHEME
Dealers having turnover higher than Rs. 5
lakhs(increased up to 10 lakhs) but up to 50 lakhs
during the financial year have an option to opt for
COMPOSITION scheme.

Dealer should not have stock of inter-state purchase at
the time of getting registered under this scheme.

Further, dealer cannot avail input tax credit nor he
can issue vatable invoice. Therefore, even purchaser
cannot claim INPUT TAX CREDIT.

VAT is payable at a very low rate i.e., .25%

The registration obtained by the dealer
can be cancelled in the following
circumstances:

Discontinuance of business
Disposal of business
Transfer of business to a new location
Dealer has failed to furnish return on
time or has committed any fraud under
the act.



A trader registered for VAT effectively pays VAT only at one stage
when he sells his goods.

This tax is the only amount, which has an effect on his selling
price which includes VAT.

The VAT that he has paid as a part of his purchase price is charged
on him by his suppliers.

This is not a cost to him because he gets it back by deducting it
from tax on his sales (Output Tax).

Therefore, VAT should have a minimum impact on his selling
prices.

Manufacturer

The Manufacturing company Perfect Shoemaker Pvt. Ltd has
purchased raw material worth Rs. 50,000/- after paying state tax
of Rs. 2,000/- @ 4%. The Labour contents are Rs. 40,000/- and the
margin towards administrative and selling expenses and profit are
Rs.10000 hence the total sale price 100000/- .Suppose the tax is
rate 12.5% he will charge Rs 12500 as tax from the Wholesaler.
Since he has already paid Rs 2000/- on the raw materials hence
his net tax liability Rs 10500/- after getting a credit of Rs 2000/-
tax paid by him on raw Material. This is VAT for manufacturer
Wholesaler

The wholesaler tough shoe seller has purchased goods worth
Rs 1,00,000/- after paying tax of Rs. 12,500/- as mentioned
above. Let us assume his margin for profit and expenses is Rs.
7,000/- then he will the goods for Rs. 1,07,000/- to the
retailer and also charge tax of Rs. 13,375/- from the retailer.

Since he has already paid the tax of Rs. 12,500/- on his
purchases hence his net tax liability will be Rs. 13,375/- (-)
12,500/- = Rs. 875/- We can Verify it as 12.5% of 7000 Since
the value added by the Wholesaler is 7000.
VAT RATE GOODS
0% This category covers around 50 commodities comprising of:
natural &unprocessed products
items which are legally barred from taxation
items which have social implication
1% This special rate is meant for special stones,bullion,gold and
silver ornaments etc.
4% This rate is applied to largest no. of goods, common for all
states like items of basic necessities, capital goods & all
agricultural and industrial products
5% This rate covers declared goods.(maximum rate on declared
goods can be 5%)
20% Luxury goods
12.5% Goods not covered by the above categories