Full form of VAT

Suppose A is a manufacturer, B is a dealer and C is a retailer and D is a customer.

A sells an item to B at Rs.100 and tax rate is 10%

At this point B pays Rs.100 + the tax(10)=Rs.110 to A.

Now suppose B sells this item at Rs.200 and tax rate is 10% to C.

At this point C pays Rs.200 + the tax(20)=Rs.220 to B.

Now suppose C sells this item at Rs.300 and tax rate is 10% to D.

At this point D pays Rs.300+the tax(30) = Rs.330 to C.

The first tax paid by B Rs.10 is called as Service tax.

Now the tax paid by C -tax paid by B = VAT for that transaction.=20-10=10

Now the tax paid by D -tax paid by C = VAT for that transaction.=30-20=10

VAT=Tax on sale-Tax on purchase

Total VAT=addition of VAT for all the transactions.

VAT is a value added tax