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The essence of VAT is in providing set-off for

input tax and this is applied through the concept
of input credit/rebate. This input credit in
relation to any period means setting of the
amount of input tax by a registered dealer against
the amount of his output tax. The Value Added
Tax (VAT) is based on the value addition to the
goods. And the related VAT liability of the dealer
is calculated by deducing the input credit from
the tax collected on sales during the payment
period. We are going to discuss this concept with
examples.
ñ. If VAT registered business receive more output tax
than the taxes paid as input they will need to pay the
difference to the commissioner of tax (State)
2. If the input tax paid is more than the output tax
collected.
 You can carry forward the input Credit and adjust it
against the output tax in the subsequent month.
 You can have the input Credit refunded to you at the
end of the current or following year, by the
Government.
 You can receive refunds for Input Credit on exports
within a period of three months.
î
This is tax paid on the purchases.


This is tax charged on sales.

î

 The amount of input tax that is
permitted to set-off against Output tax.
ëealer with annual gross turnover not exceeding a
certain threshold (threshold-decided by respective
State Government) can opt for a composition scheme
whereby they will pay tax as a small percentage of their
gross turnover. However, retailers opting for this
composition scheme will not be entitled to input
Credit.
The state of Government fix the periods and the
procedures for the payment of the jump sum.
VAT was adopted because the Sales Tax system is complex
and induces no-compliance. Moreover, it has been found to
be a hindrance in the economic growth of industry. State
and the country. This cause a huge loss of revenue to the
Government.
VAT also helps in eliminating the dreaded cascading effect
of Tax. For instance, in the existing structure, inputs are
taxed before a commodity is produced and the output is
taxed after it is produced. This causes unfair double
taxation with cascading effects. However, in VAT as a set-off
is given for input tax as well as tax paid on previous
purchases, overall burden will be rationalized and prices in
general will fall. VAT thus makes Tax system simple and
transparent.
  
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