VAT (Value Added Tax): It is value added Tax. means total value which is added in goods price as a profit , on that value, the tax is paid is called VAT.

we can see it with example:

goods Purchase= 20000

Input Tax @ 4 % = 20000*4%= 800

now we sold this goods

Sale = 35000

Out put tax @ 4 % = 35000*4% = 1400

When we purchased Goods the saler collect a tax value from us as a sales tax. then we sold goods. we charge a tax amount in invoice. finally wen we pay tax to govt.

then total value of tax payble will be : Out put tax - Input Tax= 1400-800 = 600.

So Nett Tax payable Amount Is Rs. 600. this amount is a part of total value added in sales price not that sales price.

we can see it : Total Value add: Sales - Purchase = 35000-20000= 15000.

and tax amount on value added:15000*4 % = 600.

it has been proved that VAt Is an value added Tax.