• Calculate the Input Tax on all purchases during the return period.
  • Add the amount of tax credit, brought forward from previous return period.
  • Calculate the Vat Output on Sale made by the business firm.
  • Now, deduct the Output tax from Input Tax and Balance Brought Forward
  • If total of input tax/tax credit is more than output tax then it means that the business firm need not to deposit any sales tax with sales tax authorities since it has already paid more sales tax.

Illustration: In a return period, M/s Morning Place purchased the goods for Rs.200000/= and paid INPUT VAT Rs.10000/=. The accounts of M/s Morning Place are showing a balance of Vat Rs.1000/=. They sold the goods for Rs.100000/= and charged OUTPUT VAT Rs.5000/=. Calculate the Sales Tax liabilities of M/s Morning Place.

Solution:-

We shall calculate the tax liability of M/s Morning Place during a return period as under:-

Balance Brought Forward from Previous Return Period      Rs.1000/=

Add: Input VAT during current Return Period                       Rs.10000/=

Total Input Vat                                                                       Rs.11000/=

Less: Output Vat Collected on Sale                                       Rs.5000/=

Balance of Input Vat to be carried forward to next

Return Period                                                                          Rs.6000/=

In above case, there is no tax liability since the party has already paid more tax i.e. Rs.6000/=

Note:

  1. If there is any balance lying in VAT account after adjusting all local sales, then it can be adjusted to against Central Sales Tax collected.
  2. No tax credit is given against sales tax amount on Central Purchases.
  3. If output tax is more than input tax plus tax credit then the sales tax amount is to be deposited with sales tax authorities.

Illustration:-

In a Return period, M/s ABC Limited purchased goods from local suppliers for Rs.500000/= and paid INPUT VAT for Rs.25000/=. They sold the goods for Rs.600000/= within the same state and charged Rs.30000/= as OUTPU VAT. They also sold the goods out of state for Rs.100000/= and charged Central Sales Tax (CST) @ 2% i.e. Rs.2000/=. Calculate the Tax Liability of the firm.

Solution:-

We shall calculate the sales tax liability of M/s ABC Limited as under:-

PARTICULARS

AMOUNT(IN RUPEES)
Input Vat on Local Purchases

25000/=

Add: Opening Balance of Tax Credit / Input Vat

NIL

Total  Input VAT

25000/=

Less: Output Vat on Local Sales

30000/=

Net amount of VAT to deposit with sale tax authorities

5000/=

Net CST to be deposited

2000/=

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