GSTTaxation

What Are the Different Methods of Calculating GST?

The following post will help you understand and calculate GST on your own. The simple formulas are easy to comprehend. 

GST or goods and services tax is the amount/tax paid for goods and services sold within a country for consumption. GST verification on the final price, then paid by the customer and passed on to the government by the seller. GST further contains SGST, CGST, IGST and access. Many countries globally follow the GST taxing scheme and benefit from its application. Here are some well-known benefits of GST application:

  • It helps in creating an international standard
  • It has created a lot of transparency in the taxation system
  • It helped in the reduction of inflation
  • The reduction of tax brings down the production cost for companies
  • Tax liability might reduce due to the implementation of GST
  • It has prevented double taxation of commercial goods.

Despite GST being so prevalent, its understanding among people is staggeringly low. This article will help to calculate the exact GST payable to the government while filing a GST return

Basic GST Calculation

The GST formula can be used for offline calculation. This simple formula determines GST while filing GSTR 3B return:

GST= Cost of the product x GST Rate

                                 100

Final Price= Original Cost GST calculated in the previous step.

Points to remember:

  • In the case of a discount, the discount amount needs to be deducted before calculating GST after GST Registration Process.
  • Also, if freight charges are applicable, this amount is added to calculate GST. For example, if the seller is sending a courier to the customer and is adding the courier charges to the rate. In such cases, GST is to be paid on the courier charges as well.

Example for Offline GST Calculation 

Supposedly, the total cost of a service or product is ₹20000/-. There is a 10% discount on the product. But, the seller charges 2% freight. The GST rate on the product is 9%. And it is an intra-state sale.

So let us start calculating GST payable step-by-step.

  1. Cost of product= ₹20,000
  2. Discount @10%= ₹2000 (Subtracting to get a subtotal)
  3. Sub Total = ₹18,000
  4. Freight @2%= ₹360 (Adding to get a subtotal)
  5. Sub Total = ₹18,360
  6. CGST @9%= ₹1652.4
  7. SGST @9%= ₹1652.4
  8. Total cost to the customer = ₹21,664.80

GST Calculation by Calculator

GST calculation has become extremely easy via the GST calculator online. But it only calculates the total GST. You will have to bifurcate between CGST and SGST. In the case of an intrastate sale, the answer is to be divided by 2 to get the CGST and SGST. If it is an interstate sale, the final amount is the IGST and need not be bifurcated. 

Here are the steps to use the GST calculator:

  1. Enter the amount. The amount here is

    Amount = Original Price – discount freight
    In the above formula, Discount= (Original price x discount%) / 100
    And Freight= (Original price x freight%) / 100
    This calculation works right for Indian taxpayers.
  2. Enter the GST rate
  3. Click on the ‘Add GST button’
  4. This is the GST payable.

Reverse GST Calculation

It is also important to know the reverse GST calculation. Here is how to do it when the MRP of an article or service is given:

  1. Key the MRP in the initial amount tab
  2. Enter the GST%
  3. Click the ‘subtract button (-)’
  4. The resulting amount is the basic value of the commodity
  5. GST amount will also be displayed.

Reverse GST Calculation (Manually)

To learn how to calculate the same manually, here’s the formula:

Formula= (MRP x 100) / (100 GST Rate)

For example, the MRP of a particular product is ₹150, and the GST rate is 9%. So, the basic value will be:

Basic= 150 x 100/ 109 = ₹137.61

GST included in MRP= 150-137.61=₹12.39

Calculation of GST Payable

By knowing this GST payable formula, it is easy to calculate manually. Otherwise, there are multiple options available online to calculate the same:

Net GST Payable= (Net GST on the invoice Debit Note) – Input Tax credit availed Credit Note


Benefits of Using GST Calculator

It is always good to know how to calculate GST. It reduces the chances of being fooled or taken advantage of. But if GST is calculated regularly, it becomes less tedious to maintain tabs on every purchase. And in this highly technological era, a GST calculator makes GST calculation very quick and easy. Here are some benefits of using the same:

  • It saves time by providing instant results
  • The chances of human error in the calculation are eliminated
  •  The gross or net product price can be easily calculated on the GST rate
  • The calculator is easy to use
  • Above all, it is free to use online!

Using our GST Calculator, you can find out how much GST you’ll have to pay before registering for GST.

The below example shows how GST has benefitted dealers and manufacturers:

Value to manufacturer Old tax system GST system
Production Cost ₹1,00,000 ₹1,00,000
Profit Margin @10% ₹10,000 ₹10,000
Excise Duty @12% ₹12,000 ——–
Total Production Cost ₹1,22,000 ₹1,10,000
VAT @12.5% ₹15,250 ——–
CGST @6% ———- ₹6,600
SGST @6% ———- ₹6,600
Invoice for Manufacturer ₹1,37,250 ₹1,23,200
Value to Wholesaler
Cost of goods ₹1,37,250 ₹1,23,200
Profit Margin @10% ₹13,725 ₹12,320
Total value ₹1,50,975 ₹1,35,520
VAT @12.5% ₹18,871.875 ———-
SGST @6% ———- ₹8131.2
CGST @6% ———- ₹8131.2
Invoice for wholesaler ₹1,69,846.875 ₹1,51,782.4
Value to Retailer
Cost of goods ₹1,69,846.875 ₹1,51,782.4
Profit@10% ₹16,984.68 ₹15,178.24
Total Value ₹1,86,831.55 ₹1,66,960.64
VAT @12.5% ₹23,353.94 ————-
SGST @6% ₹10,017.63
CGST @6% ₹10,017.63
Invoice for retailer  ₹2,10,185.49 ₹1,86,995.90

GST Impact on Product Pricing

The government levies a tax on the national public in indirect taxes called Central GST or CGST and State GST or SGST. In the case of intra-state purchases, the seller collects CGST and SGST from the consumer. It is then paid to Central and State Governments. The below example will show the difference between the old tax system and the GST tax system. This will clearly showcase how GST is helping to save people’s hard-earned money:

Old Tax System GST System
Price of a commodity sold from Bangalore to Jaipur= 500 Price of a commodity sold from Bangalore to Jaipur= 500
VAT @10%= 50 CGST@5%= 25 SGST@5%=25
Cumulative cost= 550 Cumulative cost= 550
Adding Seller Profit= 500 Adding Seller Profit= 500
Selling Price= 1050 Selling Price= 1050
CST@10%= 105 IGST@10%= 55
Total cost= 1155 Total cost= 1105

Conclusion

GST calculation can be cumbersome if the understanding is poor. We hope that this post might have bought some clarity about GST: https://cbic-gst.gov.in/gst-goods-services-rates.html. GST calculation is easy enough if the principle behind the calculation and the logic are understood.  

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