Concept of VAT,What is Value Added Tax, Input VAT&Output VAT

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What Is Value Added Tax ( VAT)

VAT is a multi-point destination based system of taxation, with taxes being levied on the value added at each stage of transaction in the production/ distribution chain. The term ‘value addition’ implies the increase in value of goods and services at each stage of production or transfer of goods and services. VAT is a tax on the final consumption of goods or services and is ultimately borne by the consumer. To know more about concept of VAT ,visit this link

Coming to to the practical aspect, Vat is a tax charged by government on each value addition by seller for profit. Vat is payable to government by seller and seller collect VAT from customers. The ultimate burden comes on the shoulder of Consumer.Below info-graphic will give you a clear picture of VAT Concept.

Info-graphic On VAT Concept

value=Concept Of VAT (Value Added Tax)

What Is Input VAT ?

Input VAT is the tax paid with purchase,the amount of tax paid on purchase invoice is called input tax.When a seller buy goods from the manufacturer or whole seller , VAT has to be paid.This tax can be claimed while he pays taxes.

What is output VAT?

Output VAT is the tax collected from the customer during the sales transaction, or this is the tax collected through sales invoice. This tax should be paid to the government after deducting input tax.

What IS VAT Payable?

VAT Payable meaning the amount of tax to be paid to the government, this is the net difference between Output tax and Input Tax, or in simple words  VAT Payable = Output Tax – Input Tax.

Which means a seller can deduct taxes he paid during his purchase in total taxes collect from the sales transaction.

What is VAT Rate?

This is the rate or percentage of taxes to be calculated and collected through customer invoice and deposited in government.Government has fixed different VAT rates for different commodities subject to change in future period.Normally Rate change is announced during the Budget summit of the State.

Hope the post will give you a clear idea on VAT concept, so as to start VAT SET-UP in Tally ERP9.

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