Sunday , September 24 2023

Simplest Explanation of GST Tax Calculation

The major reform in taxation system of Indian economy is taking place in the form of implementation of Goods and Services Tax. GST has been the latest buzz among trader and the economist since the GST bill introduced in year 2016. What will be the GST numbers ?? How gst tax calculation is carried out? what are gst rates??- these are some of the questions lingering on mind of the people concerned with it.  But we think that the GST calculation is more simpler than the current Indirect tax calculation happening now. And this is why the GST is to be implemented to make the taxation more transparent and simple.

What is GST ?

GST is the acronym for Goods and Service Tax. This new reform in the taxation system dictates that all services and goods should have a common national tax rate. This reform will put an end to those indirect taxes which is added on along with the basic marked price of the goods and services irrespective of their nature. This allows the Central government to assume more power in case of taxation of sales and services. It has been declared that taxation scheme will run on a dual GST model. This means that there will be two types of GST – a National GST or Central GST (CGST) and a State GST (SGST).  The tax calculation will be divided among these centers.

The taxation scheme was brought into discussion as the 124th Amendment Bill and both the houses passed it along with the assent from the President Pranab Mukherjee. The plan is to be implemented from 1st July 2017.

GST tax calculation

Where has it been implemented and what are its rates?

The first country to implement GST was France in the year 1954. After that, about 150 countries have introduced GST within their domain. Brazil, Canada and India follow the dual GST system. Though the plan is the same, the rates differ from country to country.  Here are some examples of different rates in other countries:

  • Japan 5%
  • Australia 10%
  • France 6%
  • Canada 5%
  • New Zealand 15%

In India, the GST rates will vary from 20% to 23%, which is way above the global average of 16.4%. This is below the neutral rate of 27% which is the rate which GST should have been imposed to keep at par with the current taxation scheme.

GST Tax Calculation

Before describing how to calculate GST with an example, there is a certain key point of the taxation scheme which needs to know.

The scheme is divided into three forks

1. CGST (Central GST): This tax can only be levied by the central government
CGST will replace following taxes:
Central Excise duty, Excise duty levied under medical and Toiletries Preparation Act,Service Charge, Education Cess, Surcharge.
2. SGST (State GST): Levied by the state government
SGST will replace following taxes:
VAT/Sale Tax, Entertainment tax, Luxry Tax, Taxes on Loterry/gambling/betting.
3. IGST : This is the inter-governmental control of the taxation scheme on such select exempted goods and services.

Taxes which will be remain same as per current system are:
Stamp Duty, Vehicle tax, Electricity duty, Entertainment tax, Basic Custom duty.
Here is a simple GST calculation to explain the taxation process

Non GST scheme

GST Scheme

Manufacturer to Wholesaler
Manufacturing Cost: Rs. 1000 Manufacturing Cost: Rs. 1000
Profit Margin: Rs 200 Profit Margin: Rs 200
Final price: Rs. 1200 Final price: Rs. 1200
Excise Duty(12%): Rs. 144
Total: Rs. 1344 Total: Rs. 1200
VAT(12.5%): Rs. 168
CGST: – CGST (12%): Rs. 144
SGST: – SGST (12%): Rs. 144
Invoice Value: Rs. 1512 Invoice Value: Rs. 1488
Wholesaler to Retailer
Buying Cost: Rs. 1344 Buying Cost: Rs. 1200
Profit Margin: Rs 134 Profit Margin: Rs 120
Total: Rs. 1478 Total: Rs. 1320
VAT(12.5%): Rs. 184.75
CGST: – CGST (12%): Rs. 158.4
SGST: – SGST (12%): Rs. 158.4
Invoice Value: Rs. 1662.75 Invoice Value: Rs. 1636.8
Retailer to Consumer
Buying Cost: Rs. 1478 Buying Cost: Rs. 1320
Profit Margin: Rs 148 Profit Margin: Rs 132
Total: Rs. 1626 Total: Rs. 1452
VAT(12.5%): Rs. 203.25
CGST (12%): Rs. 174.24
SGST (12%): Rs. 174.24
Final Price to the Consumer: Rs. 1829.24 Final Price to the Consumer: Rs. 1800.48
Savings By the customer: Rs. 28.76
Percentage saved: 1.57%




Authored by howtocalculate

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