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Value Added Tax

Value Added Tax

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Published by Dipsha Tejwani

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Published by: Dipsha Tejwani on Aug 14, 2011
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Turnover is defined under the CST Act as: Aggregate of Sales Prices received and receivable by the dealer in respect of sales of any goods in the course of inter-state trade made during any prescribed period and determined in accordance with provisions of CST Act and Rules.

deduction of sales tax should be made from the aggregate of sales price. (Total sales price of all the inter-state sales during the prescribed period) ² (CST payable)   Turnover of a dealer = . Quarterly or monthly In determining turnover. Aggregate of sales price ² Total sales price for the prescribed period. Prescribed period ² period in which sales tax return has to be filed as per local sales tax law.

50.50. sales tax rate is 4%). Compute the taxable turnover and the tax liability of X Ltd. rejected the goods and the same were received back on 15-11-2008.59.000 carrying 2% CST was dispatched on 16-4-2008..55.20. 1.000.Rs.000 were returned on 21-12-2008 and goods worth 1. since all the relevant forms have been received. Is Rs.5%).50. 91. Sale during 1-6-2008 to 31-3-2009 Rs. A buyer to whom goods worth Rs.1.000 (If goods are sold within the state.goods worth Rs.70. Out of the goods sold for Rs. .000 on 16-7-2008 that were liable to CST @2%.20.000 were returned on 1-2-2009.000(If the goods are sold within the state. sales tax rate is 12.50. which consists of the following:     Sale up to 31-5-2008.Question: Total inter-state sale for the financial year 2008-09 of X Ltd.

59.000.5% will be payable on this case.000. deduction of Rs. 1.55.50. as no form can be supplied in respect of these goods. The reason is that.50. time limit of 6 months for return of goods does not apply. as the goods were rejected. Hence. 1. sale never took place. goods worth Rs. Hence.  Out of sales of Rs. . while goods worth Rs.20.Solution:  Out of sale of Rs. Sales tax of 12.000 will not be available.000 from sales will be available.000 were returned after 6 months.000 were returned within 6 months. goods worth Rs.20. 91.20.

Compute tax liability under the CST Act.000. X reported sales turnover of Rs. 5. assuming the rate of tax @2%.000. 36.Question: Mr. This includes the following:  Excise duty Rs.20.000. 3.00.  . Sales tax was not included separately in the sales invoice.00. Deposit for returnable containers and packages Rs.

000) = CST @ 2% =Rs. aggregate sales price for CST calculation = ( 61. Turnover= (31.20.000. Hence. This is inclusive of CST @2%.00.000.000*100)/102 = 30.5.47 .Solution : Sales tax is not payable on deposit for returnable containers. but is payable on excise duty.

‡VAT is a multi point levy where the tax paid on local purchases from the registered dealer can be set off against the tax payable on the sale of goods. ‡VAT is just an alternative method for collecting a retail sales tax. . other than special goods.‡A value-added tax (VAT) is a percentage tax on value added applied at each stage of production.

. The "value added" to a product by a business is the sale price charged to its customer.` ` ` Goods are produces in several stages before becoming final goods. minus the cost of materials and other taxable inputs. The value added at each stage of production is the difference between the firm¶s sales and the purchased material inputs used in production.

The rates under VAT are 1%. . Surcharge and Additional Sales Tax. 4% and 12.` ` The taxes replaced by VAT are General Sales Tax. Resale Tax.5% on goods eligible for input tax credit.


(1)Local authority. Transport and Construction Companies. Insurance Company. Air Transport Corporation and Airlines. hotels. factor. (6) Port Trust. Firm (2) Casual trader.. person who transfers right to use the goods (5) Dealer in eatables including food and drinks (ie. (7) Any person holding permit for transport vehicles (8) Tamil Nadu State Road Transport Corporation (9) Customs Department. Shipping. commission agent. Hindu undivided family.restaurants and sweet stalls). Association of persons. auctioneer. Railway Administration. local branch of the firm or company situated outside the State (3) Person who effects transfer of property in goods other than by way of sale (4) dealer in hire purchase. Advertising Agencies (10) Corporation or Companies of State and Central Governments . Company. works contract.

on option. 3 (4) Those dealers who intend to commence the business. may obtain registration.(1)Those dealers whose total turnover in respect of purchase and sales in the State is not less than Rs. (3) Casual Traders. agent of non-resident dealer and dealers in jewellery irrespective of quantum of turnover shall obtain registration.10 lakhs for a year are to get registered under the Act. (2) The other dealers whose total turnover for a year is not less than Rs.5 lakhs shall get registered. .

Therefore.Tax is charged separately on the basis of the tax which is paid on purchase. Subtraction Method 4. There are 3 mechanism for collection of vat which are as follows: 1. Invoice Method 3. the difference between the tax paid on purchase and the tax payable on sale as per the invoice is the VAT. Addition Method 2. Account based Method . and the tax that is payable on the sale (shown separately in the invoice).

Demerits: a. Suitability: This method is mainly used with income variant of VAT. . b.1. Step 2: Apply the rate on Step 1 to calculate the tax. This method does not easily accommodate exemptions of intermediate dealers. Computation: a. 3. It does not facilitate matching of invoices for detecting evasion. Step 1: Aggregate all the factor payments including profits to arrive at the total value addition. b. 2.

at the stage of purchases in setoff). This method is also called the ³Tax Credit Method´ or ³Voucher Method´.. 4. (i. Salient features: a.1. b. . tax is to be charged separately in the invoice. Merits: a. Computation: Step 1: Compute the tax to be imposed at each stage of sales on the entire sale value. The most important aspect of this method is that at each stage. Step 3: The differential tax is paid. this method is followed. Step 2: Setoff the tax paid at the earlier stage. because credit can be claimed only when purchase invoice is produced. 2.e. Suitability: Under Central Excise Law. 3. In this method the beneficiary is the trade and Industry because the tax collection at all stages is very much lesser than the tax received by the State because of the availability of setof of tax paid. The possibility of tax evasion is reduced to minimum. b.

b. ax is charged only on the value added at each stage of the sale of goods b. . 3. tep 2: pply the rate of tax on the amount calculated in step1.1. alient Features: a. c. irect ubtraction method: Value added = Total value of sales exclusive of tax ess: otal value of purchases exclusive of tax. ethods of determination of value added: a. Indirect ubtraction ethod 4. Intermediate subtraction method: Value added = Total value of sales inclusive of tax. ess: otal value of purchases inclusive of tax. uitability: his method is normally applied where the tax is not charged separately. here is no tax credit as the total value of goods sold is not taken into account. omputation: tep 1: ompute the value added under either of the above methods. 2.

.  The tax is calculated on the value added.  This procedure is not in practice in India. It is basically followed in country like Japan. measured as a difference between revenues and allowable purchases. No specific invoices are used.

sales tax is levied on the total value of goods and services purchased. Unlike VAT. The value added tax system. ` ` .` The Value Added Tax is a form of indirect tax that is imposed at different stages of production on goods and services. unlike the conventional sales tax system. efficiently addresses the problems of cascading and input tax credit that causes an automatic hike in the consumer price level. VAT is levied on the import goods as well and the same rate is maintained as that of the local produce. as compared to VAT is the percentage of revenue imposed on the retail sale of goods. Sales tax.

` The i i ence f cascading is avoided in T as the tax is i osed on the val e addition at ever stage of roduction. To deal ith this disadvantage. The value added tax system requires an effective accounting. the same tax is charged to each member involved in the production of the goods and services ` ` . The economic effect of T falls on the final prices of the goods and services hile sales tax relies on the final sale to the customers. The final consumers are the ultimate earers of the urden. This indirect et coherent form of taxation involves transparency and is therefore easily comprehensi le.

` The system of taxation under T is also successful in avoiding tax evasions that is frequent in sales tax Sales tax is often considered a burden if the percentage charged goes beyond and is subjected to evasion by the consumers ho engage in buying products through the internet and other activities such as buying at holesale or through an employer lthough tax evasion is not possible in T. ` ` ` T ` . it is subjected to other fraudulent practices such as carousel fraud. owever. This is one of the prominent practices of theft of the value added tax. s compared to T. sales tax is a major revenue earner for the regional governments in such countries. poses constraints in developing countries such as India The predominance of low per capita income in these nations poses a difficulty for the governments to earn revenue through income tax. T is one of the newest instruments of the global economy and is widely accepted and implemented in most of the nations.

traders and consumers and hold the following advantages: . manufactures. VAT is also expected to be more effective and efficient for every person including Government.VAT is being implemented in various states in place of the local sales tax payable by the seller.

` ` ` ` ` ` Easy to dminister & ransparent ess itigation ax redit on purchase of apital Goods o ascading Effect inimum Exemptions elf ssessment .

India being a Federal Republic country has state level administration of the local sales tax which is being replaced by VAT and had been the reason for deferment of its implementation time and again. Inherently there are certain limitations of VAT due to which it being opposed by some of the trade associations which are as follows: .

` ` ` ` ` ` ` Detailed ecords Increase in Investment is inflationary is regressive ot redit for ax paid on Interstate urchases Increase in Investment efund of tax .

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