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In understanding any taxation system, one needs to know the language of taxation. The language of taxation referred to here is about the certain 'Terminologies' which are used frequently in managing and administering taxes. These terminologies are the words that represent a specific concept or a definition of law. Knowing these terminologies will help businesses to understand the law quickly and compliance will be easy and appropriate.
In this article, we will be discussed the most frequently used terminologies in the indirect tax system.
|A firm, sole trader, professional or another person who carries out the specific economic activity and who is registered under law or required to be registered under the law is a taxable person. Only a taxable person is allowed to collect tax and remit to the government.
|Tax Registration Number
|Tax registration number is a unique identification number allotted by the Government to a taxable person. The taxable person needs to quote his registration number at the time of payment of tax and all other communication with the Government
|The tax collected on the sale of goods or services is called Output Tax. For example, A One Traderssold goods worth 1,00,000 + 5% tax. The Tax of 5000 collected by A-One Traders is an output Tax and excess of output after Input Tax Credit Adjustment needs to be remitted Â to the Government.
|The tax paid on the purchase of goods or services is called as Input Tax. For example, A-One Traders purchased goods worth 50,000 + 5% tax from Jumbo Distributors Tax of 2,500 paid by A-One Traders is an Input Tax.
|Input Tax Credit
|Input Tax Credit is popularly known as ITC. It is a benefit under which the amount of tax paid on the purchase is allowed to reduce from the output tax payable by Taxable Person.
|Input Tax Credit Adjustment
|It is a mechanism of adjusting the input tax with output tax. In the above used examples, A-One Traders has an output tax of 5,000 and an input tax of 2,500. Now, A-One Traders adjusted input VAT of 2,500 with output tax of 5,000 and paid the balance of 2,500 to the Government.
|Tax period refers to a period for which the tax payable needs to be calculated, the statement needs to be prepared with relevant details and submitted to the government. Usually, the tax period is monthly, quarterly or annually.
|Tax Return is a statement to be prepared and submitted by a Taxable for a tax period. This statement usually contains the details of Sales, Purchases, Input Tax, Output Tax and Tax Payable.
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