-My company(manufacturing) is about to donate it's product to orphanage. My company is registered in vat. In this case i have  some quires-

1. What is the limitation of Donating amount to the orphanage(which is tax exempt).

2. How do i calculate the cost of the donation as it include the transportation cost too.

3. How to account the transaction, steps for it like inventory, expenses and tax effect to my company.

4. In this case do i need to do VCTS if yes what document do i need to add there like invoice or challan or other?

5. What happens to VAT as i have paid VAT for purchase of raw materials what effect does it to vat calculation?

6. How is it shown in Annex 13? as the donation amount is above 1 lakhs?

Note: These questions seems to have special implication on your entity's accounting and taxation so, before just generalizing the common practice, it is important to consult with your auditor to proceed.

1. There is no limit on how much donation can be an entity gives but there certainly is limit on tax benefit an entity can enjoy. Donation limit (for tax benefit) will be lower of:

 a. Actual Donation

b. Rs. 1.00,000

c. 5% of Adjusted Taxable Income (You might want to take help of your auditor here)

2.  Calculation of cost of Donation is similar to cost of Sales. (Add purchase cost and all direct expense including transportation)

3. Donation is recorded as Expense but without creditor :).  We need to recognize donations only at cost. Journal Entry would be :

Donation Exp Dr.

Purchase Acc Cr. (Provide inventory details to adjust closing stock)

4. VCTS is required for goods transportation in inter- city.

5. VAT invoice will be issued to NGO, in which VAT will be added on cost, this will have effect similar to VAT on sales.

6. If transaction value exceeds Rs. 1 lakh, it should be included in Annex 13 (similar to expense transaction).

Note: These questions seems to have special implication on your entity's accounting and taxation so, before just generalizing the common practice, it is important to consult with your auditor to proceed.

3 & 5 - How do i account ?

Vat invoice or journal Entry?