As a part of major indirect tax reforms in the country, sales tax structure prevalent at the State-level is being replaced by Value Added Tax (VAT) in many States w.e.f April 1, 2005. The essence of VAT is that it provides credit/set-off for tax paid on purchases against the tax payable on sales. With a view to provide guidance on various accounting issues that are likely to arise on implementation of State-level VAT, the Institute of Chartered Accountants of India has issued 'Guidance Note on Accounting for State-level Value Added Tax'. The Guidance Note provides guidance in respect of accounting for various aspects of State-level VAT including:

• accounting for VAT credit available on purchase of inputs

• accounting for VAT credit available on purchase of capital goods

• accounting for VAT credit available on opening stock at the inception of the VAT scheme; and

• accounting for VAT payable on sales.

The Guidance Note also contains an Appendix which provides various examples to illustrate application of the principles explained in the Guidance Note.