PART THREE VALUE ADDED TAX

VAT Terminology VAT – Value Added Tax - VAT – Value Added Tax - This is the new system being implemented from April 1, 2005 in A.P and other states. This is the new system being implemented from April 1, 2005 in A.P and other states. Unlike, Sales Tax, VAT is calculated based on Input & Output variation. Unlike, Sales Tax, VAT is calculated based on Input & Output variation.

VAT Terminology – Input Tax INPUT TAX INPUT TAX Input Tax is the Tax shown in our purchase bills. Input Tax is the Tax shown in our purchase bills. As per the norms, every trader need to show Tax separately and it is considered as Input Tax. As per the norms, every trader need to show Tax separately and it is considered as Input Tax. Apart from Trade Purchases, Tax on Capital Goods purchases like A.C., Computers etc.. is also considered for this Input Tax. Apart from Trade Purchases, Tax on Capital Goods purchases like A.C., Computers etc.. is also considered for this Input Tax.

VAT Terminology – Output Tax OUTPUT TAX OUTPUT TAX Output Tax is the Tax charged on all the Taxable sales of a Vat Dealer. Output Tax is the Tax charged on all the Taxable sales of a Vat Dealer. For Ex. Tax shown by us our Output Tax and it becomes Input Tax for our customer. For Ex. Tax shown by us our Output Tax and it becomes Input Tax for our customer. Output Tax is the Tax charged on all the Taxable sales of a Vat Dealer.

Features of Value Added Tax Accurate VAT calculation Accurate VAT calculation Determine VAT Liability/Refund Determine VAT Liability/Refund Meets all accounting and statutory norms Meets all accounting and statutory norms Statutory VAT & CST Reports Statutory VAT & CST Reports

VAT Applicability Below 5 Lakhs turnover – No Tax & No. Regn required. Below 5 Lakhs turnover – No Tax & No. Regn required. 5 – 40 Lakhs – TOT will apply & VAT is optional. 5 – 40 Lakhs – TOT will apply & VAT is optional. Above 40 Lakhs – VAT will apply. Above 40 Lakhs – VAT will apply.

VAT Rates There are three main rates for Input and Output Vat tax. There are three main rates for Input and Output Vat tax. 0% for Agriculture products. 0% for Agriculture products. 3% for Small scale taxpayer 3% for Small scale taxpayer 13% for Some special goods, for example books. 13% for Some special goods, for example books. 17% for The general taxpayer 17% for The general taxpayer

Input Tax Amount Calculation Month Purchases Gross Value X Rate of Tax Month Purchases Gross Value X Rate of Tax For ex.: For ex.: Input Tax = 10,00,000 * 0.04 = 40,000/- Input Tax = 10,00,000 * 0.04 = 40,000/- Purchases, includes Trade purchases and Capital Goods purchases as per the existing VAT Rate. Purchases, includes Trade purchases and Capital Goods purchases as per the existing VAT Rate.

Output Tax Amount Calculation Month Sales X Rate of Tax Month Sales X Rate of Tax Output Tax = 20,00,000 * 0.04 = 80,000/- Output Tax = 20,00,000 * 0.04 = 80,000/- On the invoice, we should show, Items Amount, VAT Value and Total Value On the invoice, we should show, Items Amount, VAT Value and Total Value In case of discounts, it should be given before VAT. In case of discounts, it should be given before VAT.

Tax Credit If Input Tax is greater than Output Tax, then we should not pay Tax to Government. If Input Tax is greater than Output Tax, then we should not pay Tax to Government. This amount will be carried forward to the next month. This is the Tax Credit Amount. This amount will be carried forward to the next month. This is the Tax Credit Amount. Input Tax 1,00,000/- Input Tax 1,00,000/- Output Tax 50,000/- Output Tax 50,000/- Tax Credit = Input Tax – Output Tax = 1,00,000 – 50,000 = 50,000/- Tax Credit = Input Tax – Output Tax = 1,00,000 – 50,000 = 50,000/-

Opening Stock Tax Calculation Opening Stock Tax Claim should be submitted by 7th April Opening Stock Tax Claim should be submitted by 7th April Submitted before 30th, is subjected to acceptance of Dept. Submitted before 30th, is subjected to acceptance of Dept. Submitted after 30th, are not allowed for Tax Claim. Submitted after 30th, are not allowed for Tax Claim. VAT Claim Form 115 Need to be submitted. VAT Claim Form 115 Need to be submitted. Tax Computation based on previous sales tax rate. Tax Computation based on previous sales tax rate. If Trader has bill with Tax shown clearly, it is considered for 100%. If Trader has bill with Tax shown clearly, it is considered for 100%. If Trader has inclusive Tax Bill, 90% of bill value is considered for Calculation. If Trader has inclusive Tax Bill, 90% of bill value is considered for Calculation.

Opening Stock Tax Calculation For Ex: 10 Lakhs with 10% SST - 1 Lakh as Opening Stock VAT Claim. For Ex: 10 Lakhs with 10% SST - 1 Lakh as Opening Stock VAT Claim. Opening Tax Credit arrived can be re-deemed as follows: Opening Tax Credit arrived can be re-deemed as follows: Opening Stock tax will be deducted between Aug 2005 – Jan 2006 as 6 monthly installments. Opening Stock tax will be deducted between Aug 2005 – Jan 2006 as 6 monthly installments. If still, credit is there after Jan 2006, it will be carried forward and it can be adjusted upto Jan If still, credit is there after Jan 2006, it will be carried forward and it can be adjusted upto Jan If still additional amount is there, it will be paid by Govt in Mar 2008 If still additional amount is there, it will be paid by Govt in Mar 2008

Tax Amount Calculation Output Tax – (Input Tax + Tax Credit + Opening Stock Vat Adjustment Amount) Output Tax – (Input Tax + Tax Credit + Opening Stock Vat Adjustment Amount) VAT Equation VAT Equation Sales Value – Purchase Value = G.P X VAT Rate. Sales Value – Purchase Value = G.P X VAT Rate. Tax Paid Date Tax Paid Date If not paid by 20th of the month then 5000/- penalty If not paid by 20th of the month then 5000/- penalty

Example Opening Stock Value6,00,000 Tax Rate10% Claimed60000 MonthPurchasesSalesInput TaxOutput TaxTax PayableOpening Stock Tax Credit April May June July August September October November December January February March

Tips for VAT Accounting In March 2005, it is suggested to reduce the stocks and do not purchase, unless, it is urgent. This way, we can reduce opening stocks for New Fin. Year. In March 2005, it is suggested to reduce the stocks and do not purchase, unless, it is urgent. This way, we can reduce opening stocks for New Fin. Year. In April, May, June, July, We suggest to maintain balance of Purchases and Sales, which helps to plan Tax in a better way. In April, May, June, July, We suggest to maintain balance of Purchases and Sales, which helps to plan Tax in a better way. From August onwards, you can reduce purchases, as Opening Stock Credit will be used from these months. From August onwards, you can reduce purchases, as Opening Stock Credit will be used from these months.

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