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What is Vat?
Vat means Value Added Tax
Vat is a tax on Sale of Goods within State in India
What is Input Vat and Output Vat?
Vat on Purchase is called Input Vat
Vat on Sale is called Output Vat
What is Vat Payable?
Vat Payable=Output Vat-Input Vat
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Case 1
Suppose a dealer makes purchases and sales as follows
Purchase
| A LTD | |
| Purchase | 40000 |
| Vat 5% | 2000 |
| 42000 | |
Sales
| X LTD | |
| Sale | 60000 |
| vat 5% | 3000 |
| 63000 | |
What is
Input Vat
Output Vat
Vat payable?
Input Vat=2000
Output Vat=3000
Vat Payable
=Output-Vat-Input Vat
=3000-2000
=1000
Case 2
Suppose a dealer makes purchases and sales as follows
| B LTD | |
| Purchase | 80000 |
| Vat 12.5% | 10000 |
| 90000 | |
| Y LTD | |
| Sale | 60000 |
| Vat 12.5% | 7500 |
| 67500 | |
What is
Input Vat
Output Vat
Vat payable?
Input Vat=10000
Output Vat= 7500
Vat Payable
=Output Vat-Inout Vat=
7500-10000
=0
Since Input is more than Output,there is no vat payable to Government
What is Vat Credit
If Input is more than Output,this is called Vat Credit
In case 2
Vat Credit=10000-7500=2500
This Vat credit is added to Input Vat of next period
There can be either
Vat Payable
or
Vat Credit
In Case 1,there is Vat Payable
but
in Case 2,there is Vat Credit
Case 3
Suppose there are 2 types of purchase and sales
Purchases
| A LTD | B LTD | |||
| Purchase | 40000 | Purchase | 80000 | |
| Vat 5% | 2000 | Vat 12.5% | 10000 | |
| 42000 | 90000 | |||
Sales
| X LTD | Y LTD | |||
| Sale | 60000 | Sale | 60000 | |
| vat 5% | 3000 | Vat 12.5% | 7500 | |
| 63000 | 67500 | |||
What is
Input Vat
Output Vat
Vat payable?
In this case,we consider Total Input Vat and Total Output Vat
Total Input Vat=2000+10000=12000
Total Output Vat=3000+7500=10500
Vat Payable=0
Vat Credit=12000-10500=1500
