How is VAT computed?

From a seller's point of view VAT is computed by applying the applicale rate on the selling price of taxable supplies. For example, if a seller sells an article for AED 100 and the rate of VAT is 5%. The amount of VAT shall be computed by applying 5% on AED 100 (i.e. AED 5).

 

 

VAT Liability can be arised only when your taxable services Or Taxable Goods sale is more than Your Purchases. Apply the rate of tax on Price and pay the amount.

VAT computed on price of the product.

For exmple price of the product is AED 100 and rate of VAT is 5% then the VAT will be 5 AED.

This is out put tax as per seller perspective and input tax as per buyer perpective.

Tax liability will be the differential of output tax and input tax for a tax period.

VAT IS COMPUTED BASED ON THE PURCHASE(INPUT TAX) MINUS SALES(OUTPUT TAX).

1. IF THE INPUT IS LESSER THEN THE OUTPUT THAT IS THE LIABLITY BY THAT PERSON/DEALER AND THAT SHOULD BE PAID BY HIM/THEM.

2. IF THE INPUT IS HIGHER THAN THE OUTPUT TAX IT SHOULD BE CARRIED OVER TO THE DEALER ( IE THE CREDIT FOR THAT DEALER AND HE/THEY HAVE NOT ANY LIABLITY TO PAY TAX)

3. THE ABOVE SHOULD BE ALLOWED AFTER THE GENUINENESS OF THE CREDIT VERIFIED BY SCRUTINY

First Calculate your total Input (Purchases) and Output (Sales) VAT for quarter. If Output VAT is more then input VAT then the difference of both is your liability and if Input VAT is more then output VAT then the difference of both is recoverable from tax authorities.

VAT payable is the amount of VAT output collecyed in excess to the VAT input paid

In simple words, VAT = Output Tax – Input Tax Now let’s see how Input and Output Tax are calculated: Input VAT: Amount paid by a buyer as a percentage of cost price for goods/services used to make a final product Say the Cost Price of a goods/services is = INR 100 Assuming the VAT rate to be 12.5%, Input VAT (VAT paid during buying) = INR 12.50 Output VAT: Amount received by a seller as a percentage of the selling price of the final product Say the Selling Price of the Product is = INR 200 Output Tax (VAT collected during resale) = INR 25 VAT Payable: VAT Payable = Output VAT – Input VAT = INR ( 25 – 12.50) = INR 12.50 VAT is therefore calculated by deducting tax credit from tax collected during the payment period.

Vat Payable =  Output vat on sales - Input vat on purchase

Excess of output vat should be remitted to tax authorities

which tax we give to our purchaser from whom we purchased the goods that is called INPUT TAX CREDIT or in short ITC

and which tax we recive from our seller that is called out put tax.if the the out put tax is greater than the input tax then we have pay the balance amount as our tax liability or tax payable.

INPUT VAT-DR PURCAHSE VALUE-50

OUTPUT VAT-CR SALES VALUE-100

PAYABLE VALUE-50/-

It is quite a simple process. You need to account for VAT on your net sales by applying the appropriate VAT rate and calculation of any VAT you have suffered in your company expenses. By the end you have to just check whether the VAT on sales is higher than you suffered on purchases or vice versa. The difference is payable to tax authorities in case VAT on sale is higher . Difference is claimable from tax authorities if VAT suffered on purchases is hugher than VAT on sales.