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Delhi Value Added Tax - Part 3 - Calculation of Taxs
November, 01st 2010
This part describes how you calculate your taxes.
Basic Concepts:
You need to understand certain basic concepts which are used in calculating the taxes due under DVAT.

"Output Tax" is the tax that you charge on your sales that are subject to tax. The tax is calculated by multiplying the sales turnover (defined as the sale price excluding the amount of DVAT) by the applicable tax rate.

"Input Tax" is the tax (DVAT) that you paid on your purchases of business inputs, which include the goods that you bought for resale, raw materials, capital goods, as well as other inputs for use directly or indirectly in your business.

"Tax Credit" is the amount of input tax for which you are allowed to claim a credit. It is also referred to as "Input Tax Credit".

"Net Tax" is the difference between your Output Tax and Tax Credits you are allowed to claim in a given tax period. It could be a positive or a negative amount. The negative amount represents tax credits in excess of output tax for a given period.

The basic calculation of DVAT is relatively straight forward. For any given tax period, you first calculate your total output tax by multiplying the turnover for each sale of goods during the period by the tax rate applicable to those goods. You then calculate your total input tax for the period by adding up all the DVAT amounts charged by your suppliers on purchases made by you during the period. Your net tax is the difference of the two amounts. If the difference is positive, you pay this amount to the government. If the difference is negative, you can apply the excess credits against your CST liability, and claim a refund for any remaining balance. Alternatively, the excess credits can be carried forward to the next period.


A dealer ABC in Delhi purchases goods in Delhi for which he pays Rs 2000 as input tax. He makes a sale in Delhi for which the tax is Rs 900. He also makes an inter-state sale to another dealer situated outside Delhi for which the CST is Rs 3000.

His net DVAT liability for the period is a negative amount of Rs 1100. He can apply this negative amount against his CST liability.

He will be required to pay Rs 1900 (CST of Rs 3000 reduced by excess DVAT credits of Rs 1100) to the government.

Types of Sales
Under DVAT, your sales may be of the following types:

"Taxable Sales" are sales on which you have to charge tax, and you will be able to claim input tax credits on purchases of inputs for use in making these sales.

"Exempt Sales" are those sales that are exempt from tax, and no tax credits are allowable for purchases for use in making these sales.

"Non-Taxed Sales" are sales that are not subject to DVAT, but you may claim tax credits on purchases related to these sales. They consist of inter-state and export sales from Delhi.
Type of Sales Tax Payable Input Tax Credits Allowed
Taxable Yes Yes
Exempt No No
Non-taxed No Yes
Taxable sales include all sales of goods in Delhi by registered dealers (including those required to be registered), except those which are specified to be exempt or non-taxed. In addition to the normal sales of goods, sales under hire purchase agreements and other installment payment systems are included within the meaning of sale. Also included are transfers of property in goods in the course of execution of a works contract, and transfers of the right to use any goods.
Exempt sales include:

a. Sale of goods specified in the First Schedule, such as books, periodicals, newspapers, and maps, coarse grains other than paddy, rice and wheat, fresh vegetables and fruits, fresh plants, saplings and fresh flowers, and meat, fish, eggs, and livestock; and
b. Resale of capital goods used exclusively for purposes other than making non-taxed sales, provided no tax credit has been claimed.
In addition, sales by certain dealers or class of dealers are exempted from tax, subject to such conditions as may be prescribed. These dealers are the ones listed in the Fifth Schedule.

In addition, sales by certain dealers or class of dealers are exempted from tax, subject to such conditions as may be prescribed. These dealers are the ones listed in the Fifth Schedule.
1. In the course of inter-state trade or commerce; and
2. In the course of import to, or export from India.

Sales of goods located outside Delhi at the time of sale, that are not going to be brought into Delhi are also outside the purview of the DVAT Act. Since you cannot claim input tax credits in respect of such sales, they are effectively treated as exempt sales (as opposed to non-taxed sales).
What Input Tax Credits Can You Claim:
An important point to remember is that tax credits are allowed only in respect of the DVAT paid or payable on your inputs, and for which you have a valid tax invoice. Another point to remember is that tax credits are allowed in respect of the DVAT paid on those of your purchases that are for use in making taxable or non-taxed sales.
Thus, no credit can be claimed for:

a. CST applicable on your inter-state purchases;
b. Central excise duty, service tax, or the local sales tax or value-added tax paid or payable to other states or union territories;
c. Goods acquired for personal use of the business proprietor or the employees;
d. Goods acquired for use in making exempt sales; and
e. Goods for which you do not have a valid tax invoice, i.e., goods acquired from a non-registered dealer, or a registered dealer who cannot issue a tax invoice.
There are certain additional rules and restrictions relating to input tax credits that you should be aware of:

a. You can claim a tax credit for goods for resale, raw materials, overhead materials and supplies, as well as for capital goods. However, the tax credit for capital goods has to be spread over three years. You can claim credit for one-third of the input tax on capital goods at the time you buy the goods, one-third in the following financial year, and the remaining one-third in the second financial year following the year you acquired the goods .
b. Where the goods purchased, or the goods manufactured from the goods purchased, are exported from Delhi to another state or union territory under a branch transfer or consignment arrangement, no credit is allowed for the first 4% of the input tax applicable on the goods purchased. Credit is allowed in respect of only that portion of the input tax that is in excess of 4% of the purchase turnover.
c. No credit is allowed for purchase of goods to be incorporated into the structure of a building owned or occupied by the person.
d. Credits will also not be allowed for certain goods specified in Schedule VII to the DVAT Act, e.g., automobiles, and meals and entertainment items.
Adjustments to Tax Credits
Where goods purchased are used in part for an activity eligible for the tax credit, and in part for an ineligible activity (e.g., personal use), you must allocate the input tax to two parts and claim the credit for the eligible part only. An adjustment is also required where there is a change in use of the inputs subsequent to claiming of the input tax credit.
Refund or Carry Forward of Excess Tax Credits
As noted earlier, if your input tax credits in a tax period exceed your output tax, you can apply the excess to offset your CST liability for the period. If you still have an excess credit balance, you have the choice of claiming a refund or carrying forward the excess to the next period to be claimed against the tax liability for that period.
Rates of Tax
The DVAT Act prescribes the following rates of tax on different types of goods:
1. 1% Rate: Goods listed in the Second Schedule
2. 4% Rate: Goods listed in the Third Schedule
3. 20% Rate: Goods listed in the Fourth Schedule
4. 12.5% Rate: Goods involved in the execution of works contract
5. 12.5% Rate: Any goods not mentioned in the Second, Third, or Fourth Schedules above, or in the First Schedule (exempted goods).

Packing Materials and Containers
Packing materials and containers are taxed at the same rate as the contents.
Other Rules for Calculating the Tax
Sale Price and Taxable Turnover
Sale Price and Taxable Turnover are two different concepts under DVAT.

Sale Price is generally the amount paid as consideration for the sale of goods, and includes the DVAT and CST you are liable to pay under the laws. Usual trade discounts that reduce the sale price and the costs of freight, delivery or installation (where these are separately charged) are deducted in arriving at the sale price.

Taxable Turnover is Sale Price less the amount of DVAT included in the Sale Price. In the case of works contract, taxable turnover includes only that portion of the contract price that represents charges towards goods (i.e., it excludes charges for labour, and services).

DVAT is calculated by multiplying the taxable turnover by the applicable tax rate.
Time of Sale and Purchase
The time of sale will follow your choice of basis for your commercial or income tax accounting. There are two ways of accounting for DVAT: the invoice (or accruals) basis and the cash (or payments) basis. These are described in the next part of this guide.
Tax Period
If your turnover exceeds Rs 5 crores in a financial year, you must calculate your taxes and file your returns on a monthly basis. If your turnover is less than Rs 5 crores, you may opt to file returns either monthly or quarterly. In some cases, the DVAT authorities may ask you to file monthly returns even though your turnover is less than Rs 5 crores.
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