In order to eliminate the cascading effect on tax, GST was introduced to the nation last year. This overarching tax is levied by the Centre and the State on every value addition. Its implementation is a disguised multi-stage process which requires thorough comprehension. For instance, a manufacturer who produces candies buys sugar, dairy products, nuts, colours, additional flavours and other raw materials. Each ingredient adds to the value of the candy. When the manufacturer sells them to the warehouse agent, there is packaging and labelling cost. Then the transportation to the retailer involves logistics charge. After this, the shopkeeper invests in the marketing of the candies and sells them to the consumers. The financial quotation added at each step is increases the net worth of the product. This makes the amount expended at every stage convert into a single unified tax.
Components of GST
Before we investigate the details, let us see the three components of GST:
- CGST (Central Goods and Services Tax) When the transaction is intra-state, instead of VAT+ Service Tax, a part of the levy is directly given to the Central government.
- SGST (State Goods and Services Tax) When the transaction is intra-state, not VAT+ Central excise but a part of the amount is given to the State Central government.
- IGST (Integrated Goods and Services Tax)- When the transaction is inter-state, in place of Central sales tax+ Service tax, a part of the toll is directed to the Central government and then to the State government.
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Rate structure of GST
There is a fixed rate arrangement under this kind of taxation system. According to the sources, the latest percentage scheme is as follows:
- Zero tax- No tax is imposed on products such as print media, cosmetic materials, hotel-services below Rs 1000, dried vegetables, fibre plants, certain animal products and similar utilities.
- 0.25% GST- The unsorted industrial rough diamonds which formerly faced 3% tax fall under this category.
- 5% items- All the restaurants, food parcels, transportation services and other facilities implement five percent tax.
- 12% tax- Articles including diagnostic kits, indoor games, ceramic products, refined sugar, furniture, sewing machine and other.
- 18% slab- Electrical and electronic products, speakers, sanitary ware, marbles and granites and musical instruments
- 28% levy- Office articles, telecoms services, branded garments and financial services are included under this section.
GST amount calculation
Even though there is a long procedure to calculate the sum of GST on every product, there is a basic way to analyze the levy on goods in a simplified manner.
Addition of GST:
GST amount = Product of the actual cost of a product and the percentage of GST imposed is divided by 100.
Net price = Actual cost + GST amount
Subtraction of GST:
GST amount = 100 is divided by the sum of 100 and the percentage of GST levied, which is then multiplied by the original cost of the product.
Net price = Original price – GST amount
Although you can turn to a vast set of GST tool and software to estimate the cost, you need to follow steps for GST calculation in India manually.
- Excluding the products lying under the category of zero tax implementation, shortlist the ones on which GST is applicable.
- Analyze the Harmonized System of Nomenclature Code if you are manufacturing a product and Services Accounting Code if you are a service provider.
- See if the supply of entity is inter-state or intra-state. Then consider CGST, SGST and IGST accordingly.
- Decide the type on the basis of the type of business you are doing. If the company is B2C, the can be 2.5 lacs or higher.
- Finally, determine the rate structure of the concerned product. Check the column in which it lies. Now apply the percentage of GST imposed.
Advantages of calculating GST
It is a simple process:
GST calculation in India is quite easier than estimating the previous taxes. This is one of the crucial advantages of using the GST tool and software for doing the math. Also, since there is only one final tax, the procedure becomes less complicated.
It untangles the taxation structure:
GST scheme has given a trouble-free facet to the tax system in the country. The clarified anatomy makes it convenient for a layman to understand the basic terminologies.
The categorization of rate scheme is feasible:
The division of goods and the basis of the percentage of GST applied helps the producers, retailers and consumers to check their products suitably.
Benefit to the wholesalers and retailers:
At the time of billing and income tax return filing, the agents involved in the process get the refund of their already paid taxes. Due to input tax credit, prices are also deducted in the end.
Inflation is reduced:
The national economy is positively affected. As the cost price decreases, the selling amount is also reduced to a specific extent.