A manufacturer buys raw material for ₹ 40000 and pays sales tax at the rate of 4%.

A manufacturer buys raw material for ₹ 40000 and pays sales tax at the rate of 4%. He sells the ready stock for ₹ 78000 and charges sales tax at the rate of 7.5%. Find the VAT paid by the manufacturer.

Solution:

Cost price of raw material = ₹ 40000
Rate of sales tax = 4%
Total tax = ₹ = ₹ 1600
Selling price = ₹ 78000
Rate of sales tax = 7.5%

VAT paid by the manufacturer = ₹ 5850 – ₹ 1600 = ₹ 4250