Non- Deductible Input Tax

Where a registered person supplies both taxable and exempt supplies, he can deduct only the input tax  attributable to the taxable supplies.

Suppliers of both taxable and exempt goods and services will need to use the following formula for input tax. The formula is common to both.

DEDUCTIBLE INPUT TAX = (Value of taxable supplies)/(Value of total supplies) x Total input tax

The total input tax above refers to tax paid on inputs common to both taxable and exempt supplies, such as telephone expenses, electricity expenses, legal fees, audit fees etc. While arriving at total input tax, if any input tax is directly attributable to taxable supplies should be deducted in total and any Input Tax directly attributed to exempt supplies should not be deducted. If input tax attributable to exempt supplies is less than 5% of total input tax, then all the tax can be deducted.

To record Non-Deductible Input tax,

Go to Gateway of Tally > Accounting Vouchers > F7: Journal > select VAT Adjustment Class from the Voucher Class List

1. Select Non - Deductible Input Tax in the Used for field.

2. Debit Non-Deductible Input Tax ledger grouped under Indirect Expenses.

3. Enter the amount in debit field.

4. Credit the Input VAT @ 16% ledger (created under Duties & Taxes with the Type of Duty/Tax as Input VAT @ 16%)

5. In VAT Class Details screen the VAT/Tax Class selected while creating the ledger will be displayed. If the VAT Class screen is not selected for the ledger, you can select the appropriate VAT/Tax Class and skip the Assessable Value field.

6. The Credit amount appears.

7. In Brief Desc for VAT field, enter the brief description for VAT.

8. Press Y or Enter to accept and save.

Note: The value of journal entry recorded by selecting Non - Deductible Input Tax in the Used for field is captured in box 10 of Form VAT 3.