Answer Posted / tax beginner
VAT (Value Added Tax) applicable on Company’s Sales is its
liability since Company have to remit the same to
Government as Taxes on Monthly/Quarterly/Yearly Basis
(Return cum payment). A company can always pass the Burden
of this tax onto its customer by way of including it in its
Net Sales price. While making payment to Government a
company can avail setoff (reduce from VAT liability) for
the VAT paid by it for the purchases which go in to
production and ultimately gets converted into saleable
product. Thus the Eligible Input Tax Credit (Setoff) is an
Asset to a Company and gets reduced from its VAT Liability
to the Government. In Balance sheet it can be shown in
Current Asset and gets reduced/knocked off/reversed as and
when VAT Liability is discharged by making necessary
entries in Books of Accounts.
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