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
- 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.
- 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.
- 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.