VAT Calculation?

Question

If we give discount on sale amount, on which amount VAT tax calculate before discount amt. or after discount remaining amount?

Answer 1

You have not mentioned as the nature of discount i.e. Trade or Cash Discount.

VAT is calculated on the amount after Trade Discount but before Cash Discount.  Following example will help you greatly.:

Suppose Price is  .                  120.00

Trade Discount                           20.00

Invoice value of goods .           100.00    (120-20)

add VAT @ 4% on Invoice

Value  i.e. 100.00                        4.00

Total Invoice Value                  104.00

After invoicing suppose you allow cash discount @ 5% (generally it is on Invoice value of goods i e on Rs. 100/-) then VAT never considered as it will be allowed after invoicing.

The buyer will end in paying Rs.  99/-

Alternatively: You can raise Invoice as under:

Value of goods                                  95.00

(Price 120 minus trade discount

of 20 and minus cash discount

of Rs. 5/-)

Add VAT @ 4%                                   3.80

Total  the buyer will pay                     98.80

In second example buyer pays less.

However in invoice cash discount is never to be mentioned. But trade discount can be mentioned.

Answer 2

V K B has provided you the required info.

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