VALUE ADDED TAX
Presented by –
Value added tax (VAT) is an indirect tax on goods. vat is
imposed only on the amount of value addition. It is a
multi-point tax levied as a proportion of value addition,
where the tax burden can be shifted from one person to
another person till the ultimate consumer can consume
What is VAT (value added tax)
• VAT is charged by state government,
• VAT is a intra state sales tax (sales within the state)
WHY VAT ?
VAT comes in India in 1986, namely MODVAT
(Modified value added tax) in excise, that means it is not
a new scheme, it is vary old. VAT is not a new concept, it
is a part of sales tax, but vat comes into existence because
the sales tax was causing couple of problems, then to
remove these problems the VAT (which is a part of sales
tax) applied by central Gov. of India.
• Now a days after some amendments in MODVAT the name
was changed into CENVAT(central value added tax)
• sales tax is also known as Trade Tax and Turnover Tax.
Retailer (z) Cons (p)
(PUR) 110 (10) 220[10+10] 20 330(10+20) 30
Raw mat+exp 80
+profit 20 90 80
Sales price = 100 200 300
10 20 30
Invoice price 110 220 330
• Double tax (Multi taxation) charged.
• Tax on Tax (cascading effect)
As discussed as earlier, vat comes into existence because
the sales tax was causing couple of problems, these are:
There are four main rates for Input and Output Vat tax.
• 0% on (Exempted Goods) Agriculture products, Cotton
and silk yarn, Curd and Butter Milk, National Flag, Salt.
• 1% for Jewellery, Bullion and Specie, Precious and
• 4% for Pharmacy, Computers, Soaps etc.
• 12.5% for FMCG, Automobile
RNR (revenue neutralization rates)
• Input Tax is the Tax shown in our purchase bills.
• Apart from Trade Purchases, Tax on Capital Goods
purchases like A.C., Computers etc.. is also
considered for this Input Tax.
• Output Tax is the Tax charged on all the Taxable
sales of a Vat Dealer.
For Ex. Tax shown as Output Tax and it becomes Input
Tax for our customer.
Types of Dealers
A dealer whose gross annual turnover is above the VAT
threshold limit is required to register under VAT. This is
mandatory. A new dealer will be allowed 30 days time from
the date of liability to get registered. A VAT registered
dealer will be eligible for input tax credit.
• Registered Dealers
• unregistered Dealers
• Composite Dealers
A dealer whose annual turnover is less than Rs.5 lakhs
is an Unregistered Dealer and has been granted the
status of a Consumer. So, the VAT paid by an
Unregistered Dealer is treated as his cost and is charged
no further VAT on his sale.
Dealers with an annual gross turnover not exceeding a
prescribed limit (e.g. Rs. 50 lakh can opt for a composition
scheme with a payment of tax at a small percentage of
gross turnover. Dealers are not entitled to input tax credit
and required to submit vat returns in a separate format.
Principles for implementation of VAT
There are two principles that need to implement VAT system in
any particular area, these principles are discussed as below:
• Principles of origin (source)
This is a way to implement vat in particular country that means
tax will be charged on goods within Indian territory .
• Principles of destination
This is a another way to implement vat in any particular country,
where the vat charged on the basis of destination (consumption
basis), and in India vat running on this principle in present days.
Methods to calculate VAT system
There are four different methods which are used to calculate
VAT, these methods are given as below:
I. single point sales tax on the time of first sale .
II. single point sales tax on the time of last sale .
III.Multi point sales tax on the time of sales (every sale).
IV.Multi point VAT on every sale.
Now a days we are using fourth way to implement VAT
Value Added Tax Reports
• VAT Computation
The VAT Computation report will be displayed for all VAT enabled
companies. Based on the State selected for VAT Compliance and the
VAT Tax classification used while recording transactions, the list of
VAT/Tax class with the respective Assessable Value and Tax Amount
will be displayed in the VAT Computation report. The difference
between Input VAT and Output VAT will be captured either as VAT
Payable or Refundable.
1.VAT Computation – Initial View
Go to Gateway of Tally > Display > Statutory
Reports > VAT > VAT Computation
On the basis of State selected for VAT compliance, the VAT return forms can
be generated as per the state-specific statutory requirements from Tally.ERP 9.
In this sample reports document, the VAT return and Annexures are generated
as per the Statutory requirements of Tamil Nadu.
1. Form 1 – Monthly Return
Go to Gateway of Tally > Statutory Reports > VAT > VAT Forms >
VAT Return Forms > Form I
2. Form I-1 – Annual Return
Go to Gateway of Tally > Display > Statutory
Reports > VAT > VAT Forms > VAT Return
Forms > Form I-1
3. Form W
Go to Gateway of Tally > Display > Statutory Reports
> VAT > VAT Forms > VAT Return
Forms > Form W
AND two more forms on ANNUAL & FORM W are: