7/29/2019 Accounting for VAT on Works Contracts VAT Leaflet 109

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W h a t i s V A T? V A T l e af l e t 1 0 1 Q What is VAT? AVa lu e Ad ded Ta x ( VAT) is a mo de rn a nd p rog re ss iv e f or m o f s al es t ax . I t i s c ha rg ed a nd c ol le cte d by d eal er s o n t he

rice paid by the customer. VAT paid by dealers on their purchases is usually available for set-off against the VATol le ct ed o n s al es .

Qs V AT y et a no th er t ax ?

ANo, it will replace these four existing taxes The Bombay Sales Tax Act, 1959 The Maharashtra Sales Tax on theTr an sfe r o f Rig ht to Us e An y Go ods F or An y P ur po se Ac t, 1 98 5 The Mah ar as ht ra S ale s Tax o n t he Tr an sf er o f

ro pe rt y i n G oo ds I nv ol ve d i n t he E xe cu ti on o f Wo rk s C on tr ac t ( re -e na ct ed ) A ct , 1 98 9 T he B om ba y S al es o f M ot or pirit Taxation Act, 1958

QW hy c ha ng e t o V AT ?

AVAT i s a mo de rn a nd p ro gr es siv e t ax s ys te m n ow u se d i n o ver 1 30 o th er c ou nt ri es . Mo st o f t he S ta te s h av e a gr eed t o

ha ng e o ve r t o a V AT s ys te m p ro vi di ng u ni fo rm it y. A f ew r em ai ni ng s ta te s h av e a gr ee d t o V AT i n p ri nc ip le a nd a reik el y t o j oi n i t a wh il e l at er .

QW h a t a r e t h e b e n ef i t s o f V A T ?

A

1) It i s s im pl e, t ra ns pa re nt a nd p ro gr es si ve ( 2) Bu si ne ss f ri en dl y s ys te m o f t ax at io n ( 3) Re du ct io n i n t he n um be r o f t axat es t o o nl y t wo ma in r at es - 4 % a nd 1 2.5 % ( 4) Re du ct io n i n t he e ff ec ti ve t ax r at e f or ma ny g oo ds ( 5) El imin at io n o f ta x o n t ax e xi st in g i n t he s al es t ax s ys te m ( 6) Fu ll s et -o ff a va il ab le f or V AT p ai d o n m os t b us in es s p ur ch as es

7) Si mp li fi ca ti on o f t ax f or ms a nd p ro ce du re s ( 8) Gr ea te r r el ia nc e o n s el f a ss es sm en t a nd v ol un ta ry c om pl ia nc e b yealers

QWhat types of businesses are liable for VAT?

AV AT a p pl i es t o a l l t y pe s o f b u si n es s es i n cl u di n g ( 1 )I m po r te r s ( 2 )M a nu f ac t ur e rs ( 3 )D is t ri b ut o rs ( 4 )W ho l es a le r s

5 )R e ta i le r s ( 6 )W o rk s C o nt r ac t or s ( 7 )L e ss o rsQ

How is VAT charged?AA ll r eg is te re d d ea le rs , r eg ar dl es s o f w he re t he y a re i n t he c ha in o f ma nu fa ct ur e a nd p ro du ct io n, m us t c ha rg e V AT o n

he ir s al es o f t ax ab le g oo ds a nd c ol le ct i t f ro m t he ir c us to me rs . R eg is te re d d ea le rs m us t i ss ue a t ax i nv oi ce t o o th er eg is te re d d ea le rs s ho wi ng t he V AT a mo un t b ei ng c ha rg ed a s a s ep ar at e a mo un t. R eg is te re d d ea le rs w ho p ay V AT o n

he ir p ur ch as es c an n or ma ll y c la im a se t- of f f or t he VAT p ai d t o t he ir s up pl ie rs . As a r es ul t, VAT i s n ot a c os t t o t heea le rs . D ea le rs m us t e ns ur e t ha t t ax i s c ha rg ed s ep ar at el y i n t he ir p ur ch as e i nv oi ce i n o rd er t o b e e li gi bl e t o c la im

et -o ff . C er ta in d ea le rs w ho s el l m ai nl y t o c on su me rs a t r et ai l l ev el c an o pt f or a s im pl if ie d s ys te m o f V AT c al cu la ti onnd p ay me nt u nd er a C om po si ti on S ch em e. U nd er t he C om po si ti on S ch em e, d ea le rs w il l n ot i ss ue a t ax i nv oi ce o r

ho w VAT a s a s ep ar at e a mo un t o n a b il l or c as h me mo ra nd um.Q

W ha t a re t he o bl ig at io ns o f d ea le rs r eg is te re d f or V AT ?AD ea le rs w ho a re r eq ui re d t o b e r eg is te re d f or V AT m us t ( 1) Ch ar ge a nd c ol le ct V AT o n t he ir s al es o f t ax ab le g oo ds

2) Is su e p ro pe r t ax i nv oi ce s ( 3) Ke ep p ro pe r r ec or ds a nd b oo ks o f a cc ou nt ( 4) Ca lc ul at e t he V AT d ue t o G ov er nm en tased on VAT charged on sales LESS any VAT available as a set-off on business purchases (5)File VAT returns on a

eg ul ar b as is d ec la ri ng t he ir V AT l ia bi li ty ( 6) Pa y a ny a mo un t o f VA T d ue t o t he Go ve rn me nt wi th t he V AT r et ur nQWhat is the rate of VAT?

AUn de r t he VAT, t he t ax r at es h av e b ee n s imp li fi ed . The re ar e o nl y t wo ma in r at es o f VAT: (1 )4 % fo r i tems c on si st in gm ai nl y o f r aw m at er ia ls u se d i n t he m an uf ac tu ri ng p ro ce ss , I T p ro du ct s a nd s ome g oo ds o f c om mo n c on su mp ti on

2) 12 .5 % f or a ll g oo ds u nl es s t he y a re l is te d u nd er t he o th er r at es F oo dg ra in s i nc lu di ng p ul se s, m il k, v eg et ab le s a ndooks are not subject to VAT. In addition, there are two other rates for specific items: (1)1% for gold, silver, otherrecious metals, precious and semi precious stones and their jewellery (2)20% for liquor The only exception to these

at es i s f or t he s al e o f mo to r s pi ri ts , wh ic h h av e s pe ci al t ax r at es b as ed o n t he e xi st in g Bo mb ay S al es o f Mo to r S pi ri tTa xa ti on Ac t, 1 95 8, s ub je ct t o a f lo or r at e o f 2 0%.