Q.A dealer buys goods worth Rs 5,000 (excluding VAT) and adds a margin of Rs 1,200 before selling. If VAT is charged at 12.5% on both the purchase and the sale, find the net VAT payable using the value-added method, and verify your answer using the output-tax-minus-input-tax method.

Since a margin (value added) is given directly, the value-added method is the fastest route; the output-input method then checks it.

Value-added method: the value added by the dealer is the margin, Rs 1,200. Net VAT payable = 1,200 × 12.5/100 = Rs 150.

Verification via output tax minus input tax: the sale price (excluding VAT) is 5,000 + 1,200 = Rs 6,200. Input tax = 5,000 × 12.5/100 = Rs 625. Output tax = 6,200 × 12.5/100 = Rs 775. Net VAT payable = 775 − 6 …

Alternative shown fully above as the verification route — computing output tax and input tax separately and subtracting is the more detailed method, and is exactly what a real VAT re …

A common slip is applying the VAT rate to the margin and calling that the "output tax" — output tax is always computed on the FULL sale price (Rs 6,200 here), not on the margin alone. It is only the NET p …