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Value Added Tax (VAT) in TallyPrime

Value Added Tax (VAT) is the tax levied at every level of value addition done to a stock item. The tax paid for acquiring the item is allowed as Input Tax Credit. On selling this item, the VAT payable to the department is adjusted against the tax credit, and only the balance amount is paid.

VAT calculation

The tax paid on purchases is termed as Input Tax, and tax payable on sales is called Output Tax. The VAT liability of the dealer is calculated as follows:

VAT Payable = Output Tax – Input Tax


Mr. Ram, a registered dealer, purchased a stock item at ₹1,000 by paying 5% tax on it, that is, ₹50. On this item, he made a value addition of ₹500, and sold it. The VAT liability (to the department) after the value addition amounted to ₹75, that is., 5% on ₹1,500. Mr. Ram can claim the tax already paid (₹50) on the initial purchase (as Input Tax Credit), and the tax liability can be adjusted against it. He then has to pay only the balance amount of ₹25 to the department.

If Input Tax is more than the Output Tax, the dealer can either carry forward the excess tax credit to the next return period or claim it as refund. The dealer can utilize this credit in the subsequent return period for payment of any liability such as output tax, interest, penalty and so on to the department, subject to the provisions or restrictions as specified in VAT Rules.

VAT in TallyPrime

  • Simple setup process, and ease of use.
  • Flexibility to create and manage VAT classifications and tax rates with corresponding applicability dates.
  • Facility to define VAT rates at company level, group Level (stock groups and account groups), stock item level and ledger level.
  • Facility to calculate tax, when MRP is inclusive or exclusive of tax.
  • View all tax payments made to the department, with challan details in the Challan Reconciliation report.
  • Provision to create payment voucher from VAT returns.
  • Provision to print tax invoice.
  • Complete tracking of transactions:
    • Up to generation of returns.
    • From selected VAT returns to transactions, till accounts/inventory masters.
    • With options to correct errors in transactions and masters from the VAT returns.
  • Categorization of transactions as Included, Excluded, and Uncertain Transactions.
  • Facility to generate VAT return at any point in time.
  • Generation of return summary for VAT forms, with detailed view of Statistics of Vouchers, Tax Computation, and Payments.
  • Generation of state-specific VAT forms, and the corresponding annexures.
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