Want to know about how to calculate GST using the GST formula? Then you are at the right place as you will get the information here
The Goods and Services Tax (GST) rate is expressed as a percentage, and How to calculate GST either the net or gross price of your product using that percentage. It is simple to use; all you need to do is input the values you already have (for instance, the gross price and the rate of GST) to get the desired results. Before moving to the GST formula, we should first understand what GST is: The Goods and Services Tax (GST) is known to be the indirect tax that has gradually replaced many other indirect taxes in India. On March 29, 2017, the Goods and Services Tax Act got approved by the Parliament after being debated for several days. The Goods and Services Tax Law in India is a thorough, multi-stage, destination-based tax assessed on every value addition. The Act was enacted on July 1, 2017, and is a destination-based tax. To put it more plainly, the Goods and Service Tax, or GST for short, is a form of indirect tax imposed on the supply of services and goods.
What Are The Three Different Kinds Of GST?
At this time, there are three different types of GST.
- CGST stands for Central GST; it applies to sales made within the state, and its revenue goes to the Central Government.
- SGST stands for state GST; it applies to sales made within the state, and its revenue goes to the state government.
- Integrated Goods and Services Tax (IGST): This tax applies to sales made outside of the state and is paid to the central government
For instance, if you sell something within the state, the GST you collect will be split equally between the SGST and the CGST (50% each). However, if you sell an item outside of a state, the entire amount you receive will be considered IGST and paid to the central government.
After going over the fundamentals of the Goods and Services Tax (GST), we can discuss how the GST is processed using Tally, including its accounting and calculation processes.
Tax Calculation under GST System
Under the GST regime, manufacturers and dealers can benefit from input tax credit. Here’s a comparison of the amount of tax payable under the old tax system and the GST system:
Value to Manufacturer:
- Cost of Production: Rs. 3,00,000
- Profit Margin (10%): Rs. 30,000
- Excise Duty (12%): Rs. 36,000 (Old Tax System) / Not Applicable (GST System)
- Total Production Cost: Rs. 3,66,000 (Old Tax System) / Rs. 3,30,000 (GST System)
- VAT (12.5%): Rs. 45,750 (Old Tax System) / Not Applicable (GST System)
- SGST (6%): Not Applicable (Old Tax System) / Rs. 19,800 (GST System)
- CGST (6%): Not Applicable (Old Tax System) / Rs. 19,800 (GST System)
- Invoice Value for Manufacturer: Rs. 4,11,750 (Old Tax System) / Rs. 3,69,600 (GST System)
Value to Wholesaler:
- Cost of Goods: Rs. 4,11,750 (Old Tax System) / Rs. 3,69,600 (GST System)
- Profit Margin (10%): Rs. 41,175 (Old Tax System) / Rs. 36,960 (GST System)
- Total Value: Rs. 4,52,925 (Old Tax System) / Rs. 4,06,560 (GST System)
- VAT (12.5%): Rs. 56,615 (Old Tax System) / Not Applicable (GST System)
- SGST (6%): Not Applicable (Old Tax System) / Rs. 24,393 (GST System)
- CGST (6%): Not Applicable (Old Tax System) / Rs. 24,393 (GST System)
- Invoice Value to Wholesaler: Rs. 5,09,540 (Old Tax System) / Rs. 4,55,346 (GST System)
Value to Retailer:
- Cost of Goods: Rs. 5,09,540 (Old Tax System) / Rs. 4,55,346 (GST System)
- Profit Margin (10%): Rs. 50,954 (Old Tax System) / Rs. 45,534 (GST System)
- Total Value: Rs. 5,60,494 (Old Tax System) / Rs. 5,00,880 (GST System)
- VAT (12.5%): Rs. 70,061 (Old Tax System) / Not Applicable (GST System)
- SGST (6%): Not Applicable (Old Tax System) / Rs. 30,052 (GST System)
- CGST (6%): Not Applicable (Old Tax System) / Rs. 30,052 (GST System)
- Invoice Value to Retailer: Rs. 6,30,555 (Old Tax System) / Rs. 5,60,984 (GST System)
Impact of GST on Product Pricing
The introduction of GST has an impact on product pricing, particularly in the context of intra-state transactions. Here’s a comparison of the pricing under the old tax system and the GST system:
Old Tax System:
Price of a product sold from Pune to Jaipur = Rs.1,000
VAT @ 10% = Rs.100
Cost of a product sold from Pune to Jaipur = Rs.1,100
Profit = Rs.1,000
Selling Price = Rs.2,100
CST @ 10% = Rs.210
Total cost of the product = Rs.2,310
GST System:
Price of a product sold from Pune to Jaipur = Rs.1,000
CGST @ 5% = Rs.50 + SGST @ 5% = Rs.50
Cost of a product sold from Pune to Jaipur = Rs.1,100
Profit = Rs.1,000
Selling Price = Rs.2,100
IGST @ 10% = Rs.110
Total cost of the product = Rs.2,210
GST Bill Rates and Its Calculation
The GST Bill passed in India, is a significant taxation reform that addresses issues related to double taxation and irregularities. The approval of four bills related to GST on March 29, 2017, paved the way for the government to set a deadline of July 1, 2017, for the full implementation of the GST Bill. This reform is expected to bring about price changes for various products and services.
Unlike the previous single tax rate system, the GST Bill introduced a multi-tier tax system with four different tax rates: 5%, 12%, 18%, and 28%. This approach is based on the rationale that essential goods and services should not be taxed at the same rate as luxury items.
It’s important to note that the GST Bill comprises two components: CGST (Central GST) levied by the central government and SGST (State GST) levied by individual states. Both components are determined based on factors like revenue and acceptability. While both CGST and SGST apply to all products and services, except for exempted goods and services, tax rates are set by both the central government and state governments, depending on prescribed thresholds for products and services.
The merging of excise duty benefits the end consumer by reducing costs for manufacturers, wholesalers, and retailers through the integration of VAT, Service Tax, and Excise Duty. This cost reduction leads to a decrease in input tax credit.
Tax Calculation for Inter-State Sales
The Integrated GST (IGST) is a tax levied by the Central Government on inter-state supply of goods and services. Unlike the old tax system where CST was charged in addition to VAT and excise duty for the movement of goods between two states, Under the GST system, IGST is the only tax applicable on goods moving across state borders.
To understand the IGST system better, let’s take an example. If the cost of goods is Rs.1,00,000, then under the old tax system, VAT of 12.5% would be charged, amounting to Rs.12,500, and CST of 2% would be charged, amounting to Rs.2,250, making the total value to the retailer Rs.1,14,500.
However, under the GST system, only IGST of 12% would be charged, amounting to Rs.12,000, making the total value to the retailer Rs.1,12,000. This example shows that under the GST system, manufacturers, wholesalers, and retailers see a reduction in cost for both intra-state and inter-state sales.
General Benefits of implementing GST in India
The implementation of a unified indirect tax system, such as GST, offers several advantages:
International Standardization: It establishes an international tax standard and ensures transparency throughout the tax structure, from manufacturers to consumers.
Preventing Double Taxation: The primary goal of GST is to eliminate double taxation of commercial goods. This is anticipated to stimulate competition among manufacturers and sellers, leading to the production of higher-quality goods and consequently, a boost in the country’s GDP.
Reduced Production Costs: Lower taxes will decrease production costs for companies, promoting competition among exporters.
Inflation Control: It is expected that inflation will decrease following the implementation of GST.
Reduced Tax Liability: A decrease in tax liability is seen because input tax credits can be applied against output taxes. Moreover, taxes can be set off using different tax input credits.
The Benefits of Utilising a GST Calculator
A GST calculator can help differentiate between the various tax brackets, which include CGST, SGST, and IGST. You will be able to determine which tax bracket your transaction will be placed in with the assistance of a GST calculator, as well as the total amount of tax that will be imposed on the goods and services sold and bought. When calculating the total cost of goods and services saves not only time but also decreases the likelihood of an error being made by a human.
What Exactly Does GST Calculator Mean?
After a couple of years of the Goods and Services Tax (GST), most businesses have become familiar with the basic information they need to have on hand regarding their products and services. The report consists of nothing more than the GST rates, HSN codes, and SAC codes, among other things, which will assist them in calculating GST more quickly, preparing invoices that comply with GST more quickly, and therefore conducting business more quickly.
On the other hand, there are many circumstances in which a businessperson might be presented with a sum that does not include GST or an aggregate that does include GST.
To make quick decisions regarding sales and purchases in today’s fast-paced business world, one needs to know the fastest method for determining prices that do not include GST and fees that do include GST. In these situations, a Goods and Services Tax (GST) calculator has proven helpful in most countries; India will be no different.
Anyone familiar with the appropriate formula can create a GST tax calculator in excel and keep it on hand for convenient use. However, becoming familiar with the GST rates is the first step toward maintaining and using a GST calculator. This is because the rates affect the calculations that the calculator produces.
Formulae for GST calculation
The calculation of GST can be explained with a straightforward example: If a product or service is sold for Rs. 1,000 and the GST rate of application is 18%, then the net price will be calculated as Rs. 1,000 plus (1,000 x (18/100)) which will equal Rs. 1,000 plus 180, which will equal Rs. 1,180.
Make sure you are familiar with how to calculate GST and that you are using the appropriate GST tax calculator here.
How Do You Calculate GST Utilising the GST Formula?
The regime for collecting indirect taxes has recently been simplified, which has made the calculation of applicable taxes much less complicated. It is now possible to calculate the different Goods and Services Tax (GST) rates applicable on the various goods or services, depending on the nature of the transaction, which can either be interstate or intrastate.
Intra-state GST Tax Calculator
In the case of transactions that take place within the same state, the GST can get calculated as mentioned below:
- CGST equals the GST applicable rate divided by two
- UTGST/SGST = GST applicable rate of GST
- The GST applicable rate is equal to the sum of the CGST, SGST, and UTGST taxes.
Tax Calculator Of Inter-State GST
In the case of dealings between states, the Goods and Services Tax (GST) can be calculated as mentioned below::
IGST stands for the applicable rate of GST.
Note:
As a result, the following formula can be derived:
Net price is equal to the original cost plus the GST amount, which is calculated by multiplying the actual cost by the percentage of the GST rate. Calculate your GST using GST Calculator.
FAQs:
1. Is there a difference in GST calculation for goods vs services?
No, there is no difference in GST calculation for goods and services. The same GST methodology applies to both goods and services.
2. Does the GST rate vary for different products and services?
Yes, the GST rate varies for different products and services. The GST Council has classified goods and services under different tax slabs, such as 0%, 5%, 12%, 18%, and 28%.
3. Is there a difference in GST calculation for B2B and B2C transactions?
Yes, there is a difference in GST calculation for B2B (business-to-business) and B2C (business-to-consumer) transactions. In B2B transactions, the GST charged by the supplier can be claimed as input tax credit by the recipient, whereas in B2C transactions, the GST charged by the supplier cannot be claimed as input tax credit by the recipient.
4. Is GST calculated on the selling price or the cost price?
GST is calculated on the selling price of goods or services. The GST amount is added to the selling price of the product or service.
Conclusion:
Use the calculation of GST with the GST formula. To know more about GST and how to calculate it, get in touch with the professionals at Vakilsearch who can be of good help here.
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