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

how does the v80 system work
imagine a chain in which a producer
sells raw materials to a factory
the factory uses these materials to
produce bikes which are then sold to a
retailer
the retailer then sells the bikes to
consumers
the first producer sells the raw
materials for 50 euros to the factory
and adds 20 percent v80 he sends the
factory an invoice for 60 euros 50 plus
10
he then transfers the 10 euros in the 80
to the tax authority without deducting
anything because he's made no purchases
the factory builds a bike and sells it
to the retailer for 100 euros the
factory charges 20% v80 on the 100 euros
and sends the retailer an invoice for
120 euros the factory deducts the 10
year as it's already paid in the 82 the
producer of raw materials and transfers
10 euros in v80 to the tax authority
the retailer sells the bike to the
consumer for 200 plus 40 equals 240
euros the retailer may deduct the 20
euros he's already paid from the 40
euros and transfers 20 euros in v80 to
the tax authority the tax authority
receives a total of 40 euros which is
exactly 40% of the consumer price the
consumer pays the tax while the
business's in the chain can reclaim it