This document discusses Value Added Tax (VAT), an indirect tax assessed on the added value at each stage of production and distribution. It provides an example of VAT being charged at different stages as a product moves from a manufacturer to a wholesaler to a retailer. VAT is calculated as a percentage of the selling price and businesses can claim credit for VAT paid on inputs. The document outlines registration requirements for VAT and key terms like input VAT, output VAT, exempted and zero-rated goods. It also discusses the advantages, limitations and rates of VAT in India.

1. VAT
[ Value
Added Tax ]

2. EXORDIUM
 Indirect tax
 Multi-point sales tax
 Tax on the added value of good/service as
it moves through the supply chain
 Assessed and collected at each stage of the
supply chain
 Collected by the state government
 Paid by the consumer ultimately

3. Manufacturing Co. “Parish Shoemaker Ltd.”
purchases raw materials worth Rs.1000 at VAT
of 12.5%. He sells it to the wholesaler at
Rs.10,000
The wholesaler adds a value of Rs.7,000 and
sells the product to the retailer at Rs.17,000
The retailer adds his margin of Rs.5000,
before selling it to the consumer for
Rs.22,000
UNDERSTANDING VAT...
What is the VAT charged at each stage???

4. I
Paid by manufacturer
Rs.1000 x 12.5% 125
II
Paid by wholesaler
Rs.10000 x 12.5%
(-) credit to manufacturer
1250
125 1125
III
Paid by Retailer
Rs.17000 x 12.5%
(-) credit to wholesaler
2125
1250 875
IV
Paid by consumer
Rs.22000 x 12.5%
(-) credit to retailer
2750
2125 625
CONTD…

5.  Obtain Registration Certificate from VAT
authorities
 Dealers with gross annual turnover above
Rs.5 lakh should compulsorily register
 Voluntary registration
 Dealers paying sales tax under the old system
 30 days time limit for new dealers
REGISTRATION

6. V.A.T. TERMINOLOGIES
• VAT on purchase of
goods and/or serviceInput VAT
• VAT on sale of goods
and/or serviceOutput VAT
• No output tax and input
tax is refundableZero-Rated
• Not liable to VATExempted

7. • Similar goods are taxed equally
• All dealers share the tax burden
• More transparent and easy to compute
• Prevents cascading effect by providing input
rebate
SIGNIFICANCE

8. METHODS OF V.A.T. COMPUTATION
Additionmethod
Addition of all
payments made
to the factors of
production
a.k.a. Income
Approach
Subtractionmethod
Difference
between value
of output and
cost of input
a.k.a. Product
Approach
Tax-creditmethod
Set-off on tax
paid on input
from tax
collected on sales
a.k.a. Invoice
Method

9. ADVANTAGE
∞ Eliminate multiple taxes
∞ Uniformity
∞ Tax transparency
∞ Lower tax burden resulting in low prices of
commodity
∞ Cheaper exports

10. o Tax evasion through bogus invoices
o Consumption based tax
o Regressive in nature
o Costly to implement
LIMITATIONS

11. V.A.T. RATES
RATES COMMODITY
0% Basic items like agricultural products, contraceptives etc
1% Heavy items such as bullion, precious stones etc
4-5%
Most of the daily consumption goods like Oil, Coffee, Medicine
and Drugs, Cotton etc
12.5-
14.5%
Other goods and FMCG
20% Liquor, Cigarette, Tobacco

12. THANK YOU!!!
Presented by:
BHARTI GOYAL D.
III B.COM [CA]