How is VAT calculated?


The Value Added Tax (VAT), or Goods and Services Tax (GST), is a use tax (CT), at any price that is added to a product.  VAT, unlike sales tax, is neutral with respect to the number of routes between producer and end consumer;  Where sales tax is levied on the total price at each stage (although in the US and many other countries, sales tax is only levied on the final sale to the end consumer and end-user use, thus there is no sales tax at the wholesale or production level  ), The result is a step.  (Bottom taxes are levied on top taxes). 

VAT is an indirect tax, thus the tax is collected from someone who does not bear the full cost of the tax.  VAT in India replaced sales tax on 1 April 2005.  Due to the federal nature of the Indian Constitution, states have the power to set their own VAT rate.

 Important terminology used in bat tax system

1.  Input Tax: Tax deposited on the purchase of goods. 
2.  Output Tax: Tax received from a customer on sale of goods.

3.Input Tax
 Adjusting the amount of Output Tax with the amount of Input Credit Input Tax. 

4.  Composite Dealer
It is used for certain traders to keep their turnover within the prescribed annual business turnover limit issued by the state governments.

Rate of VAT

Rate of VAT

The government has divided the products for VAT into 500 different categories, which are mainly implemented in 4 rates. 

1.  VAT Free: About 46 types of goods are placed in this category. 

2.  1% VAT: Items like gold and silver have been kept in this category. 

3.  4% VAT: About 270 types of items of extreme need are placed in this category.  Such as life-saving medicines, agricultural implements and things (eg: compost seeds, etc.). 

4.  12.  5% VAT: In addition to the above, all types of goods are placed in this category. 

Calculation of VAT

How is VAT calculated

The tax paid by the seller on the purchase of the goods i.e. Input Tax received from the customer on selling the goods i.e. the balance left on adjusting from the Output Tax is called VAT Payable Amount.  It is calculated as follows.  like :

A   Purchase amount: 5000/-
      VAT rate                  :12.  5%
      Input VAT amount :625 /-
      Total purchase amount   =  5625/-

B   Purchase amount: 7500/-
      VAT rate              : 4%
      Input VAT amount : 300/-
      Total purchase amount  = 7800/-

C   Purchase amount: 6500/-
      VAT rate              : 12.5%
      Input VAT amount : 812.5/-
      Total purchase amount  = 7312.5/-

D    Purchase amount: 8500/-
      VAT rate              : 4%
      Input VAT amount : 340/-
      Total purchase amount  = 8840/-

   Payable VAT {E = [(C + D) - (A + B)]} = {(812. 5 + 340) - (625 + 300)] = 227.  5 /- 

The following entries will be for the following transactions: 

(1) Goods worth Rs 5000 from development 12.  Purchased with 5% VAT. 
 Purchase A/c     Dr.  5000 
 Input VAT A/c   Dr.  625 
                           To Vikash's A/c        5625 
(Being Goods Purchases from Vikash & paid VAT 12. 5%) 

(2) Bought goods worth Rs. 7500 from Ravi with 4% VAT.                    Purchase A / c     Dr.  7500 
      Input VAT A/c     Dr.  300  
                                   To Ravi 'sA/c        7800 
(Being Goods Purchases from Ravi & paid VAT 4%) 

(3) Avinash gets goods worth Rs 6500 12.  Sold with 5% VAT.              Avinash 'sA/c       Dr.  7312.  5 
      To Sales A/c         6500 
                              ToOutput Tax A/c 812. 50 
(Being Goods Sales to Avinash & Received VAT 12. 5%) 

(4) Sold goods worth Rs. 8500 to Sugam with 4% VAT.  
      Sugam 'sA/c         Dr.  8840 
      To Sales A/c         8500 
                                   To Output A/c       340
(Being Goods Sales to Sudam & received VAT 4%)

(5) On Input Tax adjusted from Output Tax.  
Output-Tax A/c      Dr    1152.5 
To Input Tax A/c    925 
                               To Vat Payable 227.5
(Being Input & Output VAT adjusted)

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