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CONCEPT OF VALUE ADDED TAX (VAT) Value Added Tax is an indirect tax imposed on the value added to goods at each stage of production and distribution. It is collected at multiple stages, but the tax is charged only on the value added at each stage, not on the entire price. The final burden of VAT is borne by the ultimate consumer, while intermediaries only collect and deposit the tax. BASIC PRINCIPLE OF VAT The principle of VAT is based on input tax credit. A dealer pays tax on sales (output tax) but can deduct the tax already paid on purchases (input tax). The balance amount is paid to the government. This ensures that tax is imposed only on the value addition. EXAMPLES FOR CLEAR UNDERSTANDING Example 1: Simple Goods Transaction A manufacturer buys raw material for 100 rupees and pays VAT of 10 rupees. He sells the finished product to a wholesaler for 200 rupees and charges VAT of 20 rupees. He will pay only 10 rupees to the government because he deducts the 10 rupees alr...