Guide on how to Calculate Tax under GST

The below table illustrates the difference in tax amount and benefit of input tax credit which is there for dealer/ manufacturer:

*for this illustration it has been assumed that the rate of GST is 12% which will equally be distributed among state and central government. Here's an example of GST tax calculation.

PARTICULARS TAX AMOUNT AND VALUE UNDER CURRENT LAWS TAX AMOUNT AND VALUE UNDER GST LAW
Value to manufacturer    
Production cost 200000 200000
Add Profit Margin @10% 20000 20000
Add excise duty @12% 26400  
Total cost of production 246400 220000
Add VAT @12.5% 30800  
Add SGST @6%   13200
Add CGST @6%   13200
Invoice value for manufacturer 277200 246400
Value to wholesaler    
Cost of goods 277200 246400
Add profit margin @10% 27720 24640
Total Value 304920 271040
Add VAT @12.5% 38115  
Add SGST @6%   16262
Add CGST @6%   16262
Invoice value to wholesaler 343035 303564
Value to Retailer    
Cost of goods 343035 303564
Add Profit margin @10% 34304 30356
Total Value 377339 333920
Add VAT @12.5% 47167  
Add SGST @6%   20035
Add CGST @6%   20035
Invoice value to retailer 424506 373990

Assessment: Guide on How to Calculate GST?

From above illustration, we can come to 3 major conclusions

  1. Reduction in costs: Due to the reason that major taxes (Excise duty, VAT, Service Tax) subsume to single tax, the cost of goods reduce drastically to retailers, wholesalers and manufacturers. If we talk about retailers, the cost of goods has decreased from 343035 in previous tax laws to 303564 which is a significant decrease of 11.50%. Similarly, there would be a decrease in production cost too in future as there would be better logistics at reduced prices.
  2. Subsuming of Excise Duty: Excise duty is charged on the capital goods which are used by the manufacturers for the purpose of production of finished goods. Now, with GST into effect, it is subsumed to single tax which will be beneficial to the consumers. This will also help in reduction of formalities of taxation as one needs to be assessed at one level only. This will also reduce the cascading effect.
  3. Reduction in Input Tax credit: With GST there is supposed to be decrease in input tax credit for retailer and wholesaler due to the effect of reduced cost.

Tax Calculations for Inter-State sales

While there used to be a levy of CST over and above the excise duty and VAT when there used to be a inter-state sale of goods, with introduction of GST, IGST has replaced all the taxes involved in the process.

For example: Let’s suppose a retailer supplies goods amounting Rs ten lakh from Mumbai to Pune. As per previous laws, VAT @ 12.5% amounting to Rs 125,000 and CST @ 2% amounting to Rs 22,500 would have been levied which makes the total value to the retailer to be Rs 1,145,000. Now, for the same transaction if we talk about GST there will only be a levy of 12% IGST amounting to Rs 120,000 which will make the value to be Rs 1,120,000 for the retailer.

*Now, with the above text it is quite clear that costs will definitely reduce for retailers, dealers and manufacturers with GST getting into effect for both inter-state and intra state sales.

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