Value Added Tax in Tally.ERP 9 (detailed information)
Value Added Tax in India
The Value Added Tax (VAT) is a type of indirect tax and is one of major source of revenue to the
state. The VAT system was introduced in India by replacing the General Sales Tax laws of each
state. Presently in India, out of 35 States and Union Territories, 33 are following this new system
of Sales Taxation. The States/Union territories which are yet to implement the VAT system are
Andaman and Nicobar Islands, Nagaland and Lakshadweep.
The VAT system of taxation was adopted by Indian States and Union Territories in the Year 2005
by replacing the General Sales Tax Laws with New Value Added Tax Acts and the supporting
Value Added Tax Rules for proper administration and collection of Tax. Each state or union
territory is having its own methods to assess the tax liability and collection methods from the
dealers who fall under the purview of VAT.
The Administration of VAT system was undertaken by the Commercial Taxes Department of each
state along with the Excise and other indirect taxes. For easy and quick assessment of taxation
and prevention of tax evasion, the department has introduced the Registration System. This
Registration system of VAT helps in identifying the assessees who come under the purview of
VAT and are liable to collect and pay VAT. For encouraging the Registration process some
benefits or concessions are given to the dealers.
The Registered dealers are allowed to collect VAT payable by them from the immediate buyer.
They can claim the VAT paid on purchases made only from a registered dealer. The unregistered
dealer cannot charge VAT on the invoices, so the buying dealer cannot claim the VAT amount paid as ITC. Also, the unregistered dealers are not eligible for availing concessions, for e.g.,
exemptions, which are given by the government.
The commercial tax department introduced a new method of levying tax called as the Composi-
tion Scheme especially after considering the small dealers whose turnover was low and were
unable to maintain the records as per the requirements of VAT Act. These dealers have to pay a
lump sum as VAT on the sale value of goods. The VAT paid will not be shown in the invoices.
They can account for the total turnover and pay VAT on the same at the end of their return period.
For Assessing the VAT liability of dealers, each state has introduced the system of Filing Returns
for different tax periods. The tax periods could be Monthly, Quarterly, Half-yearly and Annual.
Each dealer has to file the Return by specifying the total turnover which is exempted as well as
liable for VAT along with the purchases made and tax paid on it with the amount of VAT payable or
Input tax credit carried forward within the stipulated period.
General Terminologies of VAT
Input Tax
This is the tax paid on purchases
Output Tax
This is the tax charged on sales
Input Credit
The excess amount of Input tax over output tax for the current period which is permitted to be set
off against Output tax of subsequent periods is termed as Input Credit.
TIN
Tax Identification Number (TIN) is the Registration Number given by the department to the
dealer at the time of Registration. This needs to be quoted at all required places where the regis-
tration details are to be provided.
Tax Invoice
This is the Sales invoice format issued by one Registered Dealer to another. Based on this
Invoice, ITC can be claimed by the purchasing dealer.
Retail Invoice
The Sales invoice format used for invoicing the Exempted Sales and the Sales made to Unregis-
tered dealers is termed as Retail Invoice.Registered Dealer
This term is used to identify a dealer who is registered either under Voluntary Registration or
Compulsory Registration under the VAT Act. Such dealer can issue tax invoice and also claim the
tax paid on purchases made from other registered dealers as Input tax credit.
Unregistered Dealer
Dealers who are not registered under the VAT Act are called as Unregistered Dealers (URD).
Such dealers cannot issue tax invoice. They can neither Charge Tax nor Claim Input Tax Credit.
Purchase Tax
The Tax paid on goods purchased from unregistered dealers is liable to Purchase Tax. The
purchase tax is treated as Output VAT payable by the dealer as it is a liability. It has to be paid
while making the payment towards VAT liability. Based on the Rules and Regulations, the Input
Tax Credit can be claimed on the payment made towards Purchase Tax.
Reversal of Tax Credit
It refers to the reversal of input tax credit already claimed and availed.
Composite Dealers
The State Government may, by a notification in the Official Gazette, provide for a scheme of com-
position, subject to the tax, conditions and restrictions as may be provided therein, of tax payable
by the dealers who are engaged in the business, as prescribed, of re-selling at retail, any goods or
merchandise. Different types of schemes may be notified for different classes of retailers.
The composition scheme depends on the type of business covered by the Act. The dealers
engaged in trading of goods can get the business registered under composition scheme only if
the total annual turnover is not exceeding the specified Threshold turnover limits. The tax rates
are decided at pre-defined flat rates (for e.g., 8% on Gross Turnover). These rates differ
depending on the type of business.
The Composition dealers also have the option of voluntary registration. Unlike registered dealers,
the composite dealers need not maintain books of accounts and documents. They are also not
required to follow rules and procedures for issuing tax invoices, maintaining stocks etc.
The composition dealers cannot collect the tax amounts from their immediate registered/unregis-
tered dealers. The tax amounts also are not to be shown in the invoice. Such tax amount is
treated as the expenditure incurred for the business and allowed as business expenditure.
For example, the Karnataka Value added Tax, provides that a dealer whose turnover does exceed
fifteen Lakhs for four consecutive quarters, for e.g., works contractors, hoteliers, crushing units of
granites etc., can opt for composition scheme. According to this composition scheme, the rate of
tax applicable for other than crushing units is five percent and for crushing units, the tax is to be
paid on the basis of crushing machines ranging from Rupees one lakh to two Lakhs as applicable
from time to time.Difference between Regular and Composite Dealers
The following are the cases how the composition dealers are different from Regular Dealers:
The Composition dealers cannot collect tax separately from the buyers as it is considered
as business expenditure, but the Regular dealer can collect tax.
The Composition dealers cannot claim the tax paid on their purchases as Input tax credit
whereas the regular dealer can claim ITC.
The composition scheme, is generally not applicable to the dealers who are engaged in
Inter-state trade or commerce. The Regular dealers can be engaged in inter-state trade.
The dealers registered under Composition Scheme need not maintain books of accounts
and documents when compared to Regular dealer.
Features of VAT in Tally.ERP 9
The salient features provided for VAT in Tally.ERP 9 are as follows:
Quick, easy to setup and use.
Pre-defined VAT/Tax Classifications for Purchase and Sale of goods
Facility to create separate VAT ledgers with VAT/Tax Classifications for input as well as out-
put VAT
Facility to print tax invoice
Complete tracking of each transaction till generation of returns
Better VAT-returns management
Generating of VAT Computation report with details pertaining to
The value of transactions recorded using the classifications available for VAT
Increase/decrease in input/output VAT on account of adjustment entries made using
the VAT Adjustments available on using the voucher class created for journal voucher.
VAT Payable or refundable
Generating of “VAT Classification Vouchers” report for each of the VAT/Tax classifications
Facility to Drill-down the various VAT classifications from VAT Computation report till the
last level of voucher entry
Generating VAT Returns and Annexure
Greater tax compliance
The Value Added Tax (VAT) is a type of indirect tax and is one of major source of revenue to the
state. The VAT system was introduced in India by replacing the General Sales Tax laws of each
state. Presently in India, out of 35 States and Union Territories, 33 are following this new system
of Sales Taxation. The States/Union territories which are yet to implement the VAT system are
Andaman and Nicobar Islands, Nagaland and Lakshadweep.
The VAT system of taxation was adopted by Indian States and Union Territories in the Year 2005
by replacing the General Sales Tax Laws with New Value Added Tax Acts and the supporting
Value Added Tax Rules for proper administration and collection of Tax. Each state or union
territory is having its own methods to assess the tax liability and collection methods from the
dealers who fall under the purview of VAT.
The Administration of VAT system was undertaken by the Commercial Taxes Department of each
state along with the Excise and other indirect taxes. For easy and quick assessment of taxation
and prevention of tax evasion, the department has introduced the Registration System. This
Registration system of VAT helps in identifying the assessees who come under the purview of
VAT and are liable to collect and pay VAT. For encouraging the Registration process some
benefits or concessions are given to the dealers.
The Registered dealers are allowed to collect VAT payable by them from the immediate buyer.
They can claim the VAT paid on purchases made only from a registered dealer. The unregistered
dealer cannot charge VAT on the invoices, so the buying dealer cannot claim the VAT amount paid as ITC. Also, the unregistered dealers are not eligible for availing concessions, for e.g.,
exemptions, which are given by the government.
The commercial tax department introduced a new method of levying tax called as the Composi-
tion Scheme especially after considering the small dealers whose turnover was low and were
unable to maintain the records as per the requirements of VAT Act. These dealers have to pay a
lump sum as VAT on the sale value of goods. The VAT paid will not be shown in the invoices.
They can account for the total turnover and pay VAT on the same at the end of their return period.
For Assessing the VAT liability of dealers, each state has introduced the system of Filing Returns
for different tax periods. The tax periods could be Monthly, Quarterly, Half-yearly and Annual.
Each dealer has to file the Return by specifying the total turnover which is exempted as well as
liable for VAT along with the purchases made and tax paid on it with the amount of VAT payable or
Input tax credit carried forward within the stipulated period.
General Terminologies of VAT
Input Tax
This is the tax paid on purchases
Output Tax
This is the tax charged on sales
Input Credit
The excess amount of Input tax over output tax for the current period which is permitted to be set
off against Output tax of subsequent periods is termed as Input Credit.
TIN
Tax Identification Number (TIN) is the Registration Number given by the department to the
dealer at the time of Registration. This needs to be quoted at all required places where the regis-
tration details are to be provided.
Tax Invoice
This is the Sales invoice format issued by one Registered Dealer to another. Based on this
Invoice, ITC can be claimed by the purchasing dealer.
Retail Invoice
The Sales invoice format used for invoicing the Exempted Sales and the Sales made to Unregis-
tered dealers is termed as Retail Invoice.Registered Dealer
This term is used to identify a dealer who is registered either under Voluntary Registration or
Compulsory Registration under the VAT Act. Such dealer can issue tax invoice and also claim the
tax paid on purchases made from other registered dealers as Input tax credit.
Unregistered Dealer
Dealers who are not registered under the VAT Act are called as Unregistered Dealers (URD).
Such dealers cannot issue tax invoice. They can neither Charge Tax nor Claim Input Tax Credit.
Purchase Tax
The Tax paid on goods purchased from unregistered dealers is liable to Purchase Tax. The
purchase tax is treated as Output VAT payable by the dealer as it is a liability. It has to be paid
while making the payment towards VAT liability. Based on the Rules and Regulations, the Input
Tax Credit can be claimed on the payment made towards Purchase Tax.
Reversal of Tax Credit
It refers to the reversal of input tax credit already claimed and availed.
Composite Dealers
The State Government may, by a notification in the Official Gazette, provide for a scheme of com-
position, subject to the tax, conditions and restrictions as may be provided therein, of tax payable
by the dealers who are engaged in the business, as prescribed, of re-selling at retail, any goods or
merchandise. Different types of schemes may be notified for different classes of retailers.
The composition scheme depends on the type of business covered by the Act. The dealers
engaged in trading of goods can get the business registered under composition scheme only if
the total annual turnover is not exceeding the specified Threshold turnover limits. The tax rates
are decided at pre-defined flat rates (for e.g., 8% on Gross Turnover). These rates differ
depending on the type of business.
The Composition dealers also have the option of voluntary registration. Unlike registered dealers,
the composite dealers need not maintain books of accounts and documents. They are also not
required to follow rules and procedures for issuing tax invoices, maintaining stocks etc.
The composition dealers cannot collect the tax amounts from their immediate registered/unregis-
tered dealers. The tax amounts also are not to be shown in the invoice. Such tax amount is
treated as the expenditure incurred for the business and allowed as business expenditure.
For example, the Karnataka Value added Tax, provides that a dealer whose turnover does exceed
fifteen Lakhs for four consecutive quarters, for e.g., works contractors, hoteliers, crushing units of
granites etc., can opt for composition scheme. According to this composition scheme, the rate of
tax applicable for other than crushing units is five percent and for crushing units, the tax is to be
paid on the basis of crushing machines ranging from Rupees one lakh to two Lakhs as applicable
from time to time.Difference between Regular and Composite Dealers
The following are the cases how the composition dealers are different from Regular Dealers:
The Composition dealers cannot collect tax separately from the buyers as it is considered
as business expenditure, but the Regular dealer can collect tax.
The Composition dealers cannot claim the tax paid on their purchases as Input tax credit
whereas the regular dealer can claim ITC.
The composition scheme, is generally not applicable to the dealers who are engaged in
Inter-state trade or commerce. The Regular dealers can be engaged in inter-state trade.
The dealers registered under Composition Scheme need not maintain books of accounts
and documents when compared to Regular dealer.
Features of VAT in Tally.ERP 9
The salient features provided for VAT in Tally.ERP 9 are as follows:
Quick, easy to setup and use.
Pre-defined VAT/Tax Classifications for Purchase and Sale of goods
Facility to create separate VAT ledgers with VAT/Tax Classifications for input as well as out-
put VAT
Facility to print tax invoice
Complete tracking of each transaction till generation of returns
Better VAT-returns management
Generating of VAT Computation report with details pertaining to
The value of transactions recorded using the classifications available for VAT
Increase/decrease in input/output VAT on account of adjustment entries made using
the VAT Adjustments available on using the voucher class created for journal voucher.
VAT Payable or refundable
Generating of “VAT Classification Vouchers” report for each of the VAT/Tax classifications
Facility to Drill-down the various VAT classifications from VAT Computation report till the
last level of voucher entry
Generating VAT Returns and Annexure
Greater tax compliance
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