1. Read the following passage carefully. 4 VAT means Valued Added Tax. It is a new idea in Indian Taxation system. It is expected from VAT to bring much needed reforms in the Indian taxation. It is a different system for the collection of tax. Under the VAT system, tax is charged at each point of the role of goods with input tax credit for the tax paid at the earlier stage. For example, under this system, when a person sells goods, he collects the tax on the selling price from the customer. At the end of the tax period, when he is required to make payment of taxes, he reduces the tax paid by him at the time of purchase of those goods and pays the net amount to the government. VAT is not an addition to the sales tax. It is a replacement of the sales tax. In modern production technology, the same material passes through various stages and processes till it reaches the ultimate stage. On the basis of your reading of the passage, answer the following questions : What do you mean by VAT? 1 (ii) What is expected from VAT? 1 (in) What is done under the VAT system? 1 (iv) Is VAT an addition to the sales tax? 1
Answers
Answer:
Read the following passage carefully. 4 VAT means Valued Added Tax. It is a new idea in Indian Taxation system. It is expected from VAT to bring much needed reforms in the Indian taxation. It is a different system for the collection of tax. Under the VAT system, tax is charged at each point of the role of goods with input tax credit for the tax paid at the earlier stage. For example, under this system, when a person sells goods, he collects the tax on the selling price from the customer. At the end of the tax period, when he is required to make payment of taxes, he reduces the tax paid by him at the time of purchase of those goods and pays the net amount to the government. VAT is not an addition to the sales tax. It is a replacement of the sales tax. In modern production technology, the same material passes through various stages and processes till it reaches the ultimate stage. On the basis of your reading of the passage, answer the following questions : What do you mean by VAT? 1 (ii) What is expected from VAT? 1 (in) What is done under the VAT system? 1 (iv) Is VAT an addition to the sales tax? 1
Answer:
Value Added Tax
Each time value is added, a sale is made and a tax is collected and remitted to the government
VAT adds a tax at every stage of production from the purchase of raw materials
Explanation:
VAT or Value Added Tax is a type of tax that is charged by the Central Government on the sale of services and goods to the consumers. VAT is paid by the producers of services and goods, but it is finally imposed on the consumers who purchase the services and goods when they pay for it.
The VAT system is invoice-based and is collected at multiple points during the production of a finished product. Each time value is added, a sale is made and a tax is collected and remitted to the government.
VAT adds a tax at every stage of production from the purchase of raw materials, to the assembly of those materials. The sum of the value-added at each point of sale is tacked on to the final retail sale price, making the end-user responsible for the entirety of the VAT.