Definition of Value Added Tax (VAT), Indirect Tax Laws Video Lecture | Indirect Tax Laws - B Com

hello friends welcome to tricks today we
will try to understand value added tax
value-added tax is a kind of indirect
tax I have already made a video on
tricks to remember different kinds of
direct taxes and indirect taxes you can
watch that video from the link in the
description below indirect taxes are the
taxes in which the point of incidence
and the point of impact are different
what does this point of incidence in and
point of impact means point of incidence
means where the taxes have been imposed
and point of impact means where the
actual payment of taxes takes place for
example when you buy anything there is
written in the label inclusive of all
taxes it means when you are buying
something the taxes are included in the
cost of that product so ultimately the
consumers are paying the taxes which is
included in the cost of that product
that is the point of impact means where
the actual impact of taxes are filled
however the point of incidence was at
the point of manufacturing and selling
so point of incidence was different but
point of impact is somewhere else while
in the direct taxes both point of
incidence and impact is same which means
when you draw a salary from a company or
the government it is you who is liable
to pay the taxes
you cannot shift this liability to
somebody else
you cannot shift this liability to your
wife or children or a member of the
society while in the indirect taxes
liability is shifted to the consumers so
value-added tax is a kind of indirect
tax value-added tax means taxation on
the value addition now let me explain
how taxation was done before the VAT was
introduced consider there is a lumbering
company which sells log to the carpenter
now assume that this lumbering company
sells a log in rupees 100 to the
carpenter and the tax rate is 10 percent
then at this rate this company will pay
rupees 10 to the government as
tax nowThis carpenter makes a furniture
out of that log and sells to the
furniture company in rupees 200 now at
the rate of 10% tax will be rupees 20
this carpenter will give 20 rupees tax
to the government this furniture company
will finally sell the furniture to the
consumers in rupees 300 so at the rate
of 10% it will pay 30 rupees tax to the
government so the total tax paid to the
government is 20 plus 30 plus 10 which
is rupees 60 now what happens in value
addition taxes again consider that the
rate of VAT is 10 percent and remember
the tax is on only value addition so
this lumbering company will sell the log
to the carpenter in rupees 100 in
cutting the trees and making the logs it
has added some value to the logs and
selling it in rupees 100 tax paid by
this lumbering companies rupees 10 this
carpenter adds the value to the log by
converting it into a furniture chair or
sofa sells them to the furniture company
in rupees 200 so the tax will be rupees
20 at the rate of 10 percent but the
input cost in rupees 200 is rupees 100
so value addition is only rupees 100
therefore tax will be only on rupees 100
and not 200 although this carpenter will
pay the tax of rupees 20 to the
government but the tax which have
already been paid on this input cost
which is rupees 10 will be reverted back
to his account so ultimately he is
paying 1 li rupees 10 to the government
that is tax on the value addition of
rupees 100 then this furniture company
will sell the consumer the final product
in rupees 300 value addition is of
rupees 100 this outlet has put the sofa
in the shop has put some labels on that
so some value has been added it is also
selling its services so value addition
is again rupees 100 since the input cost
of us rupees 200 it bought the furniture
in 200 and selling them in rupees 300 so
tax will be
it rupees 30 but the tax that has
already been paid on the input cost that
is rupees 200 and tax was paid rupees 20
that will be reverted back to the
account of this furniture shop so minus
20 final tax paid by this furniture shop
is 30 minus 20 rupees 10 so the total
tax received by the government is rupees
10 plus rupees 10 plus rupees 10 so the
final tax is rupees 30 in the earlier
case the government was receiving 10
plus 20 plus 30 which was rupees 60 but
now it is getting just rupees 30 you
will say that in the VAT regime
government is losing money but in actual
terms government is gaining because the
government was not able to collect that
60 rupees taxes and there was so much of
tax evasion but in this VAT regime the
tax compliance is 100 percent because if
this carpenter wants to get back the
taxes paid on the input cost that is
rupees 10 it has to keep the recipients
this 10 rupees will not be reverted back
to his account and he will have to pay
the entire amount that is rupees 20 so
in this way the VAT regime ensures the
compliance and the government is able to
receive the exact 30 rupees so this is
how what is better than the other tax
regime hope I was able to explain you
this value-added tax if you want me to
make more such videos please post that
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