VAT ( Value Added Tax )

VAT is a system of indirect taxation, which has been introduced in lieu of sales tax. It is the tax paid by the producers, manufacturers, retailers or any other dealer who add value to the goods and that is ultimately passed on to the consumer. VAT has been introduced to ensure a fair and uniform system of taxation. It is an efficient, transparent, revenue-neutral, globally acceptable and easy to administer taxation system. It benefits the common man (consumer), businessman and the Government.

Further, VAT enhances competitiveness by removing the cascading effect of taxes on goods and makes the levy of tax simple and self-regulatory, ensuring flexibility to generate large revenues.

The cascading effect is brought about by the existing structure of taxation where inputs are taxed before a commodity is produced and the output is taxed after it is produced. This causes an unfair double-taxation. However, in VAT, a set-off is given for input tax (tax paid on purchases). This results in the overall tax burden being rationalized and a fall in prices of goods.

VAT makes the tax structure simple, hassle-free, export-oriented and how the integration of VAT with Tally will help you in the smooth functioning of your business and eliminate the complications that might otherwise arise in VAT.

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 off 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 deducting the input credit from the tax collected on sales during the payment period. This concept is explained with an example, in the Computation of VAT section .

VAT works in two different ways:

1. If VAT-registered businesses receive more output tax than the taxes paid as input, they will need to pay the difference to the Commissioner of Taxes (State).

2. If the input tax paid is more than the output tax collected,

o You can carry forward the Input credit and adjust it against the output tax in the subsequent months.

o You can have the Input Credit refunded to you at the end of the current or following year, by the Government.

o You can receive refunds for Input Credit on exports within a period of three months

Term

Description

Input tax Output tax Input Credit Composite Dealers

This is a tax paid on purchases This is a tax charged on sales The amount of Input tax that is permitted to be set off against Output tax. Dealers with annual gross turnover not exceeding a certain threshold (threshold - decided by the respective State Governments) 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 Governments fix the periods and the procedures for the payment of the lump sum.

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Advantages of VAT over Sales Tax

· As VAT is a multi-point tax with set-off for tax paid on purchases, it prevents repeated taxation of the same product.

· Simple and Transparent – In the Sales tax system the amount of tax levied on the goods at all stages is not known. However, in VAT, the amount of tax would be known at each and every stage of goods sale or purchase.

· VAT has the flexibility to generate large and buoyant revenues, as it levies tax on value additions.

· Zero rating of tax on exports is possible in case of VAT.

· Fair and Equitable – VAT introduces uniform tax rates across the state so that unfair advantage cannot be taken while levying the tax.

· Procedure of simplification – Procedures, relating to filing of returns, payment of tax, furnishing declaration and assessment are simplified under the VAT system so as to minimize any interface between the taxpayer and the tax collector.

· Ability to provide same revenue to the Government with lower rates of tax.

· Tax does not become a cost of doing business.

VAT Rates

According to the White Paper, there are 550 categories of goods under the VAT system. They are classified into the following four groups, depending on the VAT rate:

VAT @ 4%

The largest number of goods (270) comprising of basic necessity items such as drugs and medicines, agricultural and industrial inputs, capital goods and declared goods are under 4% VAT rate.

Exempted from VAT

There are about 46 commodities under the exempted category. This includes a maximum of 10 commodities that each state would be allowed to select, from a broader approved list for VAT exemption. The exempted commodities include natural and unprocessed products in unorganized sector as well as items, which are legally barred from taxation.

VAT @ 1%

This is for a specific category of goods like gold, silver, etc.

VAT@12.5%

The remaining commodities are under the general VAT rate of 12.5%.

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Reconciliation of Bank accounts

Reconciling the Company's Bank Accounts with the Banker's Statement is a fundamental and regular task of Accounting. Our first presentation of this facility aims to tackle two issues.

First, there should be the ability to 'check back' the correctness of the reconciliation. This has been done, by marking the 'Bank Date' against the voucher. For instance, if you have issued a Cheque on 8th April, which was ultimately cleared by your Bank on 19th April, - you would set the Bank Date for the voucher to be 19th April. This means, that when you next need to 'check back' whether the entry made by you is correct, you will only need to verify the Bank Statement of the 19th.

Second, that you should be able to 'recover' the reconciliation as of any date. This is of crucial importance to Auditing. The Bank Reconciliation is one of the pre-requisites of Auditing and verification of the correctness of accounts at the year end. However, it is not a 'real-time' task – in the sense, that it is not done by the auditor's on the first day of the next year. This means, that the reconciliation made on 31st Mar, should be 'viewable' even in August, - by when almost all the Cheques would have subsequently been marked as reconciled. This has again been achieved using the concept above.

Bank Accounts may have a different 'Starting Date' for reconciliation purposes. When you create a Bank Account, you are requested to give an 'Effective Date for Reconciliation' just before the Opening Balance. Normally, this would be the Books Beginning from date itself. However, you could have imported data from a previous version of Tally or from any other system (where the reconciliation process was not available or was different. In that case, you may not wish to reconcile the bank account with your bank statements from the very beginning. Give the date from which you want the reconciliation facility to be activated. Then, previous entries will not appear for reconciliation, but will be taken as a reconciled Opening Balance.

A quick experiment with Reconciliation will show you what is meant. Here is how you go about it:

1. Bring up the monthly summary of any Bank Book. (You could do this from the Balance Sheet, Trial Balance, or Display/Account Books/Bank Books, and selecting a Bank).

2. Bring you cursor to the first month (typically April), and press Enter. This brings up the Vouchers for the month of April. Since this is a Bank Account, an 'additional' button F5: Reconcile will be visible on the right. Press F5.

3. The display now becomes an 'Edit' screen in 'Reconciliation' mode. The primary components are :A column for the 'Bankers Date'

4. The 'Reconciliation' at the bottom of the screen, showing:

5. Balance as per Company Books

6. Amounts not reflected in Bank

7. Balance as per Bank

The Balance as per Company Books reflects your Balance as on the last date (in our example case, 30- Apr).

The Amounts not reflected in Bank is the debit and credit sums of all those vouchers whose Bank Date is either BLANK, or GREATER than 30-Apr (i.e. these vouchers have not yet been reflected in the Bank Statement).

The Balance as per Bank is the Net effect of your Book Balance offset by the amounts not reflected in the Bank – which should equal the balance in the Bank Statement. (Of course, some variation may persist due to entries made in the Bank Statement which you have not yet entered in your Books – but since you WILL definitely enter them, and only then print your reconciliation, it will ultimately reflect the correct balance).

You will find, as you mark off the individual vouchers by setting the 'Bank Date', that the Reconciliation at the bottom of screen keeps reflecting those changes instantly. When you are finished, press Ctrl +A (or press Enter as many times as necessary to skip over the unmarked vouchers), and accept the screen. (If your screen has a largish number of vouchers it may take some time to complete the acceptance – be patient).

The next time you come for reconciliation, you will be presented only with those vouchers which remain un reconciled. Thus, the task keeps becoming simpler.

(It may be possible, that due to an error of entry made earlier, you wish to see those vouchers which are already marked as reconciled – so that you may modify their marking. To do this, press F12:Configure. In case you have already pressed a few keys BEFORE pressing F12, Tally will query whether you wish to discard changes made so far, if any, by asking 'Quit Y/N'. Simply press Y – and the configuration screen will appear. Here, specify whether you wish to see the reconciled vouchers also).

Remember, to print your Reconciliation, just press Alt+P!

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