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VALUE ADDED TAX (VAT)

Value added tax is a consumption tax. As value addition takes place, tax on
the value added is paid at the stage.

Example:

Organization ‘A’ Bought Goods of Rs 1000 and paid vat 4% and sold
Goods to Organization ‘B’ of Rs 2000 on which VAT was charged @ 4%

VAT CLASSIFICATION FOR PURCHASES TRANSACTION:

NAME ALIAS RATE TYPE OF TAX

Input VAT @1% Purchases @1% 1% VAT
Input VAT @4% Purchases @4% 4% VAT
Input VAT @12.5% Purchases @12.5% 12.5% VAT
Purchases capital
Goods 4% ------ 4% VAT

Purchases capital
Goods 12.5% ------ 12.5% VAT

Special Rate
Purchases 70% ------ 70% VAT

Special Rate
Purchases 34% ------ 34% VAT

Consignment/Branch
Transfer Inwards ------ --- Exempt

Purchases from
Others ------ --- Exempt

Purchases from URD ------ --- Exempt

Purchase - Exempt ------ --- Exempt
Imports ----- --- Exempt
Inter-State
Purchases ----- --- CST

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VAT CLASSIFICATION FOR SALES TRANSACTION:

NAME ALIAS RATE TYPE OF TAX

Output VAT @1% Purchases @1% 1% VAT
Output VAT @4% Purchases @4% 4% VAT
Output VAT @12.5% Purchases @12.5% 12.5% VAT
Output CST Inter-State Sales 4% CST
Output VAT @70% Special Rate Sales
70% VAT
@70%
Output VAT @22.25% Special Rate Sales 22.5% VAT
@22.5%
Output VAT@ 33% Special Rate Sales
33% VAT
@33%
Output VAT @1% on
works contract Works contract @1% 1% VAT

Sales - Exempt ---- --- Exempt

Consignment/Branch
transfer outwards ----- --- Exempt

TYPE OF DEALERS:

1. Un Registered Dealers
Dealers having turnover below threshold limit are exempted from the
VAT Act.

2. Dealers Registered Under VAT Act

Dealers registered under VAT Act may have either of the following
Status.

 Composite Dealers: Dealers having turnover less than limit

determined for composition and have opted for composite scheme.
 Registered dealers: Dealers registered under state VAT act
eligible to issue TAX INVOICE and claim set-off for input tax paid by
them.

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Problem: 1

1. Bought goods From Shahul 10,000

Purchase@ 4% 9,600
Input vat@ 4% 400
2. Bought goods from Benarji 15,000
Purchase@12.5% 13,125
Input vat@12.5% 1,875
3. Bought goods for Cash 5,000
Purchase@1% 4,950
Input vat@1% 50
4. Sold goods to Arun 12,000
Sales@ 4% 11,520
Output vat@ 4% 480
5. Sold goods to Surya 17,500
Sales @12.5% 15,312
Output vat@12.5% 2,188
6. Sold goods for Cash 6,000
Sales @1% 5,940
Output vat@1% 60
7. Bought goods From Neethu (Exempt) 7,000
Purchase Exempt 7,000
8. Sold goods to Vanitha for Cash (Exempt) 8,500
Sales Exempt 8,500
9. We Returns Shahul Goods 1,000
Purchase Returns@ 4% 960
Input vat@ 4% 40
10. Surya Returns Us Goods 2,000
Sales Returns @12.5% 1,750
Output vat@12.5% 250
11. Vanitha Returns Us Goods for Cash (Exempt) 500
Sales Returns Exempt 500

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Problem: 2

1. Bought goods From Shahul 10,550

Paid Vat 4%

2. Bought goods from Benarji 15,500

Paid Vat 12.5%

3. Bought goods for Cash 5,560

Paid Vat 1%

4. Sold goods to Arun 12,780

Charged vat 4%

5. Sold goods to Surya 17,500

Charged vat@12.5%

6. Sold goods for Cash 6,750

Charged vat@1%

7. Bought goods From Neethu (Exempt) 7,500

8. Sold goods to Vanitha for Cash (Exempt) 8,500

9. We Returns Shahul Goods 1,950

Input vat@ 4%

10. Surya Returns Us Goods 2,200

Output vat@12.5%

11. Vanitha Returns Us Goods (Exempt) 500

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PROBLEM 1 PURCHASED

1. Bought goods from Good luck Audio Systems

S. Vat
Items Name Quantity Rate Amount
No Rate
1 2.1 Philips HomeTheatre 20 1,100 4% 22,000
2 5.1 Sony “ 15 4,000 “ 60,000
3 4.1 Intex “ 10 2,500 “ 25,000
4 5.1 Creative “ 25 3,500 “ 87,500

Total VAT: 7,780

S. Vat
Items Name Quantity Rate Amount
No Rate
1 Sony DVD Players 10 3,500 12.5% 35,000
2 Samsung DVD Players 15 3,000 “ 45,000
3 LG DVD Players 30 3,400 “ 10,200
4 Philips DVD Players 25 3,600 “ 90,000

2. Bought goods from Good luck Audio Systems

Total VAT: 22,525

3. Goods Returns to Good luck Audio Systems

S. Vat
Items Name Quantity Rate Amount
No Rate
1 4.1 Intex HomeTheatre 2 2,500 4% 5,000
2 2.1 Philips “ 1 1,100 “ 1,100
3 Samsung DVD Players 2 3,000 12% 6,000
4 Philips DVD Players 2 3,600 “ 7,200
VAT RETURNS: 4% : 244
12.5% : 1,650

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PROBLEM 2 SALES

4. Sold Goods to Digital Media Systems

S. Vat
Items Name Quantity Rate Amount
No Rate
1 2.1 Philips HomeTheatre 10 1,300 4% 13,000
2 5.1 Sony “ 10 4,200 “ 42,000
3 4.1 Intex “ 5 2,600 “ 13,000
4 5.1 Creative “ 5 3,700 “ 18,500

Total VAT: 3,512

5. Sold Goods to Digital Media Systems

S. Vat
Items Name Quantity Rate Amount
No Rate
1 Sony DVD Players 5 3,800 12.5% 19,000
2 Samsung DVD Players 10 3,300 “ 33,000
3 LG DVD Players 15 3,600 “ 54,000
4 Philips DVD Players 15 3,800 “ 57,000

Total VAT: 20,375

6. Goods Returns from Digital Media Systems

S. No Items Name Quantity Rate Vat Rate Amount

1 4.1 Intex HomeTheatre 2 1,600 4% 3,200
2 2.1 Philips “ 1 1,300 “ 1,300
3 Samsung DVD Players 2 3,300 12% 6,600
4 Philips DVD Players 2 3,800 “ 7,600
VAT RETURNS: 4% : 180
12.5 4% : 1,775

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BRANCH TRANSFERS

Organization having branches transfer of materials from one branch to

another although inter branch transfer do not attract any tax, how ever
proper accounting is essential and the figures are reported in the VAT return.

Branch transfer transaction can be either way i.e, transfer in (or)

transfer out.

Example

On 1st April 2009, Balaji computers, Tirupati delivers 10Qt. HP 1007

Laser printers to their branch situated at Super computers, price Rs.4,500
each.

Ledger

1. Balaji Computers, Super Computers

Branches/Divisions

2. Transfer out Sales VAT (Yes) Consignment / Branch

Transfer Outwards

Note: When Branch transfer inwards you just change ‘Transfer in’ Ledger
instead of ‘Transfer out’

INTER-STATE PURCHASES AND SALES

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On purchases from other state, Central Sales Tax (CST) is paid which
is not set off against ‘output vat on inter-state sales. Since the inter-Sate
Purchases is reported in the monthly vat return the inter-state purchases
account should be set to used in vat returns to reflect in vat computation
and returns.

The treatment in case of inter-state Sales is however different where

‘input vat’ can be adjusted against output CST so output CST ledger should
to be placed under ‘Duties and taxes’ groups as usual and classified as CST
for auto computation.

Inter-State Purchases

Example:

Chennai Computers Purchases following UPS from POWER SYSTEM,

Bangalore.

V-GUARD ---------- 10No’s@ 2,250

CST ---------- 4%

Ans: 23,400

Ledger Creation:

Inter-sate purchases ---- Purchases Account --- VAT--- yes--Inter-state

purchase.

Note: Generally, an organization has done CST purchases they don’t show
tax separately if you want to show tax separately create ‘input CST’ ledger
under purchases or Direct expense group.

Inter-state sales

Ledger Creation:

1. Inter-State Sales – Sales Account --- VAT --- Inter-State sales

2. Output CST – Duties & Taxes --- CST – Inter—State Sales – 4%-- on
Total Sales

Example:

Chennai Computers Purchases following UPS from POWER SYSTEM,

Bangalore.

V-GUARD ---------- 10No’s@ 2,500

CST ---------- 4%

Ans: Output CST= 1,000

VAT ON MRP
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Few states have enacted that on certain items (e.g. Medicines) VAT
should be paid on the MRP (Printed on the pack) instead of the actual sales
rate in the bill.

Stock item master set up for MRP

Press F12 master configuration, set yes at “Calculate VAT on MRP” in

stock item master creation, a new field ‘MRP’ (Maximum Retail Price) to
appear to enter the ‘MRP’ for the items.

MRP inclusive of VAT

If VAT is to be charged extra, select ‘No’ here and in case in MRP includes
VAT select ‘YES’

Example:

Mumbai medical stores sold the following items to Balaji Medicines (all
attracting VAT 4%

Items MRP Quantity Billing Rate Amount

Cefloxin 75 100 45 4,500
Cefran 50 100 30 3,000

VAT @ 4% ----------------------- 500

Total ------------------------------ 8000

Note: VAT Calculation made on MRP Rate

Computation formula for MRP rate: (For above Example)

VAT On = MRP × Quantity

75 × 100 = 7,500

Inclusive of all tax 4% (VAT) = 7,500 × 4/104 = 288.46

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EXEMPTED PURCHASES AND SALES

Under the state vat act, certain items are exempted from levy of vat

and are placed under exempted list however the transactions of exempted

goods should reflect in the vat computation and vat return.

Example:

Items Quantity Cost Selling Price

Item-A 5 No’s 10,000 12,000
Item-B 10 No’s 5,875 6,905

PURCHASES FROM UN-REGISTER DEALER

Dealer may buy products from vendors who are not register under the

state vat act. Since URD cannot charge vat and issue tax invoice, therefore

no input tax can be claimed on such purchases and reported separate head

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IMPORTS AND EXPORTS

Imports and exports other are under exempted under to purview of

vat. However, proper accounting is necessary as the same is reflected in the
vat computation as well in returns.

Example:
Chennai computers imports the following LCD monitors from Samsung
through their regional office

18” Samsung LCD 50No’s Rs 7,500

19” Samsung LCD 60No’s Rs 7,900

Example for Exports:

Chennai computers Exports the following monitors to Bangladesh computers,

Dacca:

18” Samsung LCD 50No’s Rs 8,500

19” Samsung LCD 60No’s Rs 9,000

Refund of input vat for exports:

Exports are VAT exempted and goods purchased with in the state for
exports are also exempted from VAT.

Ledger Under Groups Duty/Tax Type VAT/Tax Class

Tax Paid on Export
D&T Others ------
Goods
Input Vat on Export
D&T VAT Input VAT 4%
Goods
Purchase @4% Purchase A/c VAT Purchase 4%
Sales - Export Sales A/c VAT Exports

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