Everything You Need to Know About Value Added Tax

What Is VAT or Value Added Tax in India?

Why Is VAT Important?

How Does Value Added Tax Work in India?

How to Calculate Value Added Tax (VAT)?

The calculation of Value Added Tax occurs on the basis of the difference between input tax and output tax. Here is the formula to calculate Value Added Tax,

Value Added Tax = Output Tax - Input Tax 

Output tax refers to the tax that the seller or dealer receives for the sale of goods and services.

On the other hand, input tax refers to the tax that the sellers pay for using raw materials needed to manufacture goods and services.  

Let’s understand the calculation of VAT with an example.

Suppose Mr. Kumar is an owner of a shop and following is a detail of his related expenses:

List of Expenses


Purchasing raw materials


Input tax

10%of 50,000 = ₹5,000

Income from raw materials


Output tax

10% of ₹1,00,000 = ₹10,000


₹10,000 – ₹5,000 = ₹5,000

This payable amount can vary from one State to another. Wondering why? Read along!

Is VAT Rate Same Across India and Managed at State Level?

How to Register for VAT Online?

List of Things Where VAT Is Applicable

What Are the Advantages of Value Added Tax (VAT)?

What Are the Disadvantages of Value Added Tax?

How Is VAT Different from GST?

Frequently Asked Questions