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How to Calculate GST (Goods and Services Tax)?

Hey there! So good to have you back again. Are you also keen on learning how to calculate GST? If yes, this blog is a must for you. Let us understand how to calculate GST. We will also understand what formulas are used while calculating GST, and the applicable tax heads under GST. Let us get started.

Goods and Services Tax (GST) was introduced in 2017 in India and is a multi-level all-inclusive tax. This tax mechanism covers all multiple indirect taxes present within the economic activities of the country into single rate slabs, presently at 5%, 12%, 18%, and 28%. Not complying with GST is a punishable offense.

GST calculation

  • GST calculation has 3 variants, one for the buyer, one for the manufacturer, and one for the retailer or wholesaler. 
  • Each of these 3 variants comes with different input options.
    1. The calculation for buyers needs inputs for product price and GST rate.
    2. Manufacturers need to enter their product cost, percentage of profit, and GST rate for assessing their liability.
    3. Wholesalers or retailers need to input the total cost of goods, profits ratio, and GST rate for complying with their tax accountability.

Each of these users will get the final onus for payable tax, which includes its breakdown (comprises CGST and SGST/IGST + tax slab).

Let us now get a breakup of the GST calculation:

  • GST calculations are usually done by manufacturers, wholesalers, or retailers as most of their transactions are business-oriented. Hence, the number of daily, monthly, yearly transactions will be recurring, which is not the case when it comes to individual buyers. Although individual buyers can figure out GST (mentioned above).

Careful observations or scrutiny must be made during the calculation of GST, as any error will lead to the wrong declaration of payable tax liabilities or excess final payment from the end customer. So, an idea/rule-based slab of the GST rates applicable for products/services of different categories as defined by the government must be known by the concerned parties. Presently, the GST rate slabs under the new tax structure are 5%, 12%, 18%, and 28%. Taxpayers can determine the distinct amounts for CGST, SGST, and IGST accurately.

Applicable Tax heads under GST are as follows:

  1. Central Goods and Services Tax (CGST): The central government is responsible for collecting this type of tax.
  2. Union Territory Goods and Services Tax (UTGST): The responsibility for the collection of this kind of GST lies with the Union Territory government.
  3. State Goods and Services Tax (SGST): This tax is applicable only when transactions are made within the state. This kind of tax is usually collected by the individual state government.
  4. Integrated Goods and Services Tax (IGST): If goods or services are provided between two states, i.e., from one state to another, then IGST or Integrated Goods and Services Tax would be applicable on all the transactions.
  5. Whenever any supplier is involved in providing inter-state supply, GST registration becomes mandatory.

What is GST (Goods and Services Tax) For Beginners?

Are you curious to know how to calculate GST using a formula? Let us find out:

Step 1: – Determine the HSN or SAC code:

  • The first step includes identifying the HSN or SAC code of the goods or services for determining tax payable. 
  • HSN codes are an international system for identifying goods, while SAC codes correspond to the type of service. Once both have been determined, better clarity is given on which tax slab is applicable.

Step 2: – Evaluate the applicability of IGST or CGST and SGST:

  • The next step is to identify whether the tax rate falls under IGST or CGST and SGST.
  • The identification of the same helps in classification meant to direct the revenue towards the state of consumption. 

Step 3: – Determine reverse charge services:

  • While the responsibility for GST compliance falls on the supplier of the goods or service, reverse charge services redirect the onus of GST payment onto the service recipient.
  • The list of reverse charge services is exhaustive. It includes online information, database access, and retrieval services, services provided by goods transport agencies, services provided by advocates, sponsorship services, services provided by Insurance agents, etc.

Step 4: – Determine the type of transaction:

  • Identify whether business-to-business transactions took place or business-to-consumer transactions. 
  • Business-to-business transactions are eligible for GST input tax credit when both supplier and recipient have GSTIN (numbers provided during registration of the companies).
  • However, Business to consumer transactions is not eligible for input tax credits.

Step 5: – GST Composition scheme:

  • The GST composition scheme is a very simple and easy scheme wherein the small taxpayers can get rid of the tedious and complicated GST formalities and are required to pay GST only at a fixed rate on the total turnover.
  • This scheme can be opted by all the taxpayers having a turnover which is less than Rs.1.5 crore.

Step 6: – Identifying exemption of specific dealers’ criteria:

  • Specific dealers or suppliers of services are exempt from composition schemes like manufacturers of paan masala, tobacco, ice cream, businesses that supply goods through an e-commerce operator.

Non-compliance of payment of GST:

  • GST returns should be filed by parties during a specific financial year. If GST returns are filed after the given due date, a late filing penalty needs to be paid along with interest on the net GST liability. This interest, also known as GST Interest, is calculated from the day immediately succeeding the due date.
  • If a company had no sales on supplies in the concerned financial period, then that company needs to file NIL GST returns. If deadlines are missed, and a company wants to know its probable interest payment, then here is how the GST interest calculation can be made using the formula.

I = P x (r/100) x (n/365)

I= Interest payable

P= Net GST liability

R= Annual Interest Rate

N= Number of days of delay since the due date

GST interest calculators can be found online as well, which can help determine such amounts faster.

What is PGP-BAT (Business Accounting and Taxation) Course?

Hope this was easy to understand. If you are further interested to learn more about GST and other topics, feel free to visit our website to learn more about the PGP-BAT course. The PGP-BAT certification course can be pursued by all the fresh graduates as well as working professionals having 0-2 years of work experience. PGP-BAT course in India is designed and curated by industry experts having experience in the field of Accounting and Taxation. Happy learning.