Value Added Tax in Public Finance

Main source of public finance are direct tax and indirect tax. In direct tax, we have already discussed income tax. Now, we are explaining value added tax. It is the revenue source of the state. Value added tax is tax which is chargeable on the value added in price. It means when a buyer buys any commodity, he has to pay VAT input and after this when he sells the same commodity by adding different charges, receives VAT output on the sale of commodities. Now, he has to pay the tax to state govt. up to the excess of VAT output over VAT input.

VAT payable to Govt. = VAT output - VAT input

The Concept of VAT is a very popular system of Taxation which emerged in European Countries. The VAT system is adopted by most of the countries to bring about user-convenience and transparency in the entire system of taxation. The working system of VAT is simple to follow, implement and administer.

If the tax paid on purchases (Input tax), is more than the tax payable (output tax), the same can be either carried forward to next return period or claimed as refund. The tax amount carried forward will be accounted as Input tax credit for the next return period. In the subsequent periods, this credit can be utilized for payment of any liability to the department like output tax, Interest, penalty etc., subject to the provisions or restrictions as specified in VAT Rules. In India, VAT applied on 1st April 2005.

VAT rates in India

Following is the list of VAT rates in India. But now some states have amended the rates of VAT.


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Accounting Education: Value Added Tax in Public Finance
Value Added Tax in Public Finance
Accounting Education
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