GST – Tax Calculations
The recently introduced Goods and Services Tax (GST) has been a part of many Indian conversations. Known as one of the biggest tax reforms since Independence, GST has affected millions of people. To drive away some of the prevailing confusion, here is a guide showing how thetax is calculated both—before and after the implementation of GST.So calculate your taxes accurately with this guide and say hello to the new era of GST India.
Before GST
Prior to 1st July 2017, products were taxed under the excise duty,Value Added Tax (VAT) and a host of other taxes. While excise duty was 12 percent of the product, VAT was 12.5 percent of the total amount consisting of the product as well as excise duty.
An example of the following is below.
- For the manufacturer:
Assuming the total cost of producing a product is INR 1,000. The manufacturer adds a profit margin of 10 percent. This makes the total product cost 1,100 without taxes. When excise duty of 12 percent is added to this amount, the total cost of production will increase to INR 1,232 (the INR 1,100 of the product + the INR 132 of the excise duty). When VAT of 12.5 percent is added to the current price, the product’s price will further increase to INR 1,386 (the INR 1,100 of the product + the INR 132 of the excise duty + the INR 154 of VAT).
- For the retailer
The product is bought by the retailer for INR 1,386. On addition of a 10 percent margin, the product’s price will increase to INR 1,524.6. The retailer will also have to pay a VAT of 12.5 percent. The product’s final price is INR 1,715.17 (The existing INR 1,524.6 + VAT of INR 190.57).
- For interstate sales
If the retailer buys the product from another state, then along with VAT he will also have to pay the Central Sales Tax (CST) of 2 percent. This would make the product’s final price INR 1749.47.
After GST
From 1st July 2017, products are taxed under GST. This has four tax slabs of 5 percent, 12 percent, 18 percent, and 28 percent.
An example of the following is below.
- For the manufacturer
Suppose the total cost of producing a product is INR 1,000. The manufacturer adds a profit margin of 10 percent. This makes the product cost 1,100 without taxes. Assuming the product is taxed under the 12 percent slab (6 percent Central GST and 6 percent State GST), the total cost of production will be INR 1,232 (the INR 1,100 of the product + the INR 132 of GST).
- For the retailer
The product is bought by the retailer for INR 1,232. On addition of a 10 percent margin, the product’s price will increase to INR 1,355.2. The retailer will also have to pay GST of 12 percent. The product’s final price is INR 1,517.82 (The existing INR 1,355.2 + GST of INR 162.62).
- For interstate sales
If the retailer buys the product from another state then the Integrated GST of 12 percent will be applicable instead of the normal GST. This will make the product’s price INR 1,517.82.
Hope this clears all your confusion regarding GST calculation.
