VAT Calculator

Value added tax (VAT) is a state-level indirect tax imposed on the sale of goods and services when these goods are ultimately sold to the consumer. Hence, it’s an important component of Gross Domestic Product (GDP) of our country. Value added tax (VAT) is implemented in all states and union territories of India except for Andaman and Nicobar Islands and Lakshadweep Island. Here are some of the benefits of having indirect value added taxation system in India:

Advantages of Value Added Tax:

• To eliminate line of tax evasion
• To evade under valuation at all phases of production and distribution
• To uplift the existing system and  create a well regulated system
• Help the nation to harmonize better in the WTO regime
• Result in better tax compliance by generating series of invoices that supports fruitful audit.
• Keep away with cascading tax burden
• To discourage the detrimental tax rate war and trade deviation among the states

How does it work?

Value added tax (VAT) is a multi-point taxation process with tax being imposed on ‘value addition’ at each phase of the production/distribution chain. Value added tax is collected at different stages of sale with the provision to set-off for tax paid on inputs (i.e. taxes paid at the preceding stages) as the intention is only to tax only the proportion of value added. Focus is to eliminate the tax burden by ensuring only the ‘additional value’ is taxable. This will ultimately reduce the possible cost for the consumer.

Let’s understand this with an example of TV manufacturing. Manufacturer has to buy various raw materials and other inputs from various suppliers. Value added tax (VAT) is levied from the manufacturer when he makes payment to suppliers and also for the amount that he pays to the distributors. This way, VAT is levied on the incremental value at various phases of manufacturing of TV. As an end user, value added tax (VAT) must be paid by the consumer (as applied to him) when he buys it from the showroom. Now, the manufacturer pays the differential amount to the government and keeps the remaining as an offset against the tax paid in the initial phases. Ultimately, VAT is paid by the consumers to the government through producers/manufactures of goods and services.

Value added tax is calculated as the difference between output tax (Tax charged on the sale of goods to consumer) and the input tax (tax paid on purchase of input).

Value Added Tax (VAT) = Output Tax –Input Tax

Let’s continue with the same example to understand this. Let’s say the TV manufacturer buys inputs from supplier for Rs.30,000 and pays input tax of 12% (Rs.30000*12%=Rs.3600) on it. Further, he sells the manufactured TV to consumer for Rs. 60,000 and gets paid output tax of 12% (Rs.60000*12%=Rs.7200). Thus, differential amount between input tax and output tax (Rs.7200-Rs.3600=Rs.3600) is the value added tax (VAT) payable to the government by the manufacturer.

There are two ways in which the value added tax is levied

1. Tax is calculated according to the tax paid on purchase of raw materials and other inputs, and the tax that is paid on the sale of end product to the consumer. The difference between the taxes paid at the time of sale and purchase is the VAT.

2. Tax is calculated and collected on the sum total of tax payable at sale and purchase of goods or services, considering the rate of tax applicable on the goods sold. VAT is the tax which is ultimately paid by the consumer but is collected at each phase of production/distribution.

VAT is state-level subject; rate varies from state to state depending on the VAT rules and guidelines of that state.  Below is the broad classification of rate slab for various goods and services:

• 0% (exempted) VAT rate– Goods that are of social importance, natural form and are mostly sold by the unorganized sector such as unprocessed agricultural goods.
• 1% VAT rate – For precious and semiprecious metals such as gold, silver, pearls etc
• 4-6% VAT rate – Essential items, daily consumption goods, inputs used for manufacturing and declared goods are categorized under this slab by most of the state governments.
• 20% VAT rate – for luxury goods
• The rest of the commodities will be taxed at a Revenue Neutral Rate of 14.5%

Here is the VAT schedule for some of the big states in India:

Andhra Pradesh, Telangana

Schedule I	List of goods Exempted from tax Under Section 7
Schedule II	Zero-Rated Transactions eligible for Input Tax Credit
Schedule III	List of goods taxable @ 1%
Schedule IV	List of goods taxable @ 5%
Schedule V	Goods Taxable at Standard Rate (RNR) of 14.5 %
Schedule VI	Goods subjected to tax at special rates

Gujarat

Tax free commodities are categorized under schedule I goods

Sale and purchase of commodities or goods that are taxed at 5% are classified under schedule II

Special rate of value added tax is applicable to goods categorized under schedule III

Commodities or goods that are not classified under any of the above schedule comes under the general category and are taxed at 15%

Maharashtra

As per Schedule A essential/necessary commodities such as food stuffs, drugs etc are taxed at 0% (exempted or tax free)

Precious metals and stones such as gold, pearl, silver etc are categorized under schedule B which are taxed at 1.2%

Goods that are of special importance and notified goods which comes under schedule C are taxed at 6%

Liquors, fuel etc are categorized as schedule D goods which are taxable at 20% and above

All the other commodities and goods that are not specified in the schedules are classified as schedule E goods and are taxed at 13.5%

There are also VAT calculators available online!