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ITC Treatment U/S 13(4)

Section 13(4) of The Punjab VAT Act Reads as under: -

"Input Tax Credit on Furnace oil, Transformer Oil, Mineral Turpentine Oil, Water Methanol Mixture, Napththa and Lubricants, shall be allowed only to the extent by which the amount of Tax paid in the state exceeds four percent.Provided that these goods are used in production of taxable goods or captive generation of power."

Example Transaction:
  
A/c Head
V.Class
Debit
Credit
Furnace Oil Purchased
 
10000.00
 
Add ITC @ 12.5 %
 
1250.00
 
Party A/c
 
 
11250.00

In this case, ITC of Rs. 850 only  is available and Rs. 400 are disallowed under Section 13(4) Accounting entry will be passed as under: -

Method 1:
Pass the normal journal entry as we make entries for Taxable Purchase on which VAT available. After this we need to pass an additional entry to reverse the input vat which is not allowed U/S 13(4)

The entry shall be as under:-
  
A/c Head
V.Class
Debit
Credit
Consumable Stores (Pur. VAT 12.5%)
 
400.00
 
Input VAT
 
 
400.00


When an Amount is credited to INPUT VAT A/c, you are prompted to select a sub VAT class. Choose 'Reversal U/S 13(4)' from the sub VAT class Pop-Up.

Method 2:
This method is available for backward compatibility. The entry in this method shall be as under: -
  
A/c Head
V.Class
Debit
Credit
Consumable Stores (Pur. VAT 12.5%)
 
10000.00
 
Consumable Stores (App. U/S 13(4) )
 
400.00
 
Input VAT
 
850.00
 
Party A/c
 
 
11250.00

Whichever method you choose the effect on VAT return shall be as under:-

In Form VAT-24, Purchase Amount will be treated as 10000.00 and Tax on it will be shown as 1250.00.

In Form VAT-15, Input VAT will be equals to 1250.00 which shall be reduced by 400.00 at Column No. 4 (k) as apportionment U/S 13(4).

Note: in Form VAT-16, only net ITC of 850.00 will be shown.