Last Updated on July 26, 2023
Calculating GST may be easy for the commerce guys. But others may find it confusing. If you are one of them, don’t worry. A GST Calculator is the solution to your problems. It makes accurate calculations.
Still, if you don’t want to take the easy route, here’s a detailed explanation to calculate GST.
A step-by-step guide to calculating GST
1. Find the GST Rate Applicable for the Goods or Service
To calculate GST, the first step is to seek out the Rate applicable under the GST Act. Over the past month, the Council has sent GST rates for nearly all merchandise and services in India.
HSN Code and SAC Code.
To find the applicable Rate, make a distinction between the type of supply. Determine whether is it a goods or a service. If the supply is goods, then it’s important to interpolate with the HSN Code applicable to the goods. HSN Code is an international system for classifying all types of goods in international transactions
One shall verify the SAC Code if the transaction involves the supply of a service. SAC Code stands for Service Accounting Codes and is used for classifying all the services under the GST. It is levied under 5 different slab rates at NIL, 5%, 12%, 18%, and 28% for both goods and services.
2. Determine the Applicability of IGST or CGST and SGST
After knowing the applicable rate, then the applicability of IGST or CGST and SGST must be determined. To determine whether IGST or CGST and SGST would be applicable, one must have to determine the place of supply.
The place of supply would be the address of delivery of goods or provision of services. Determining the place of supply is a more complex issue for other supplies involving E-Commerce.
- Inter-State Supply: If goods or services are provided inter-state, then IGST is applicable to the transaction. Whenever any supplier is involved in providing inter-state supply, registration is necessary.
- Intra-State Supply: If the supplier provides the goods or services within the same state. Then CGST or Central Goods and Services Tax and SGST or State Goods and Service Tax is applicable.
Calculating IGST, CGST and SGST
- If IGST is applicable, then the entire tax amount must be accounted for under IGST.
- If the supply is intra-state, then the tax would be divided between CGST and SGST.
- The calculation for IGST, CGST, or SGST is merely for classification purposes. It is for crediting the tax revenue to the state of consumption. The tax rate would remain the same, and there would be no double taxation.
3. Reverse Charge Basis
Normally, the supplier is prone to collect tax and remit the same to the govt. However, the recipient shall become liable if the services provided to the user are notified as reverse-charge services. Hence, the user and therefore the service supplier should know whether the dealings involve reverse charges or not.
4. Enrolling under Composition Scheme by Suppliers
Typically, compliance needs the supplier to maintain extensive accounts, records and file 3 returns in a month, vide GSTR-1, GSTR-2A and GSTR-3B. However, many SMEs in India would find compliance difficult and require a simpler mechanism. Such businesses having a turnover of not more than Rs.75 lakhs, can enrol under the GST Composition Scheme and pay a flat GST according to their aggregate turnover.
Suppliers enrolled under GST Composition Scheme have to provide proper documents detailing the recognition as composition Suppliers and therefore not eligible to collect tax. Hence, before the transaction, the user should verify if the supplier had enrolled under GST Composition Scheme or not.
5. Determine the Type of Transaction
Under GST, transactions can be broadly classified into 3 categories:
- Business to Business. (B2B): For a supply to be termed as a B2B transaction under GST and made available for GST input tax credit, both the supplier and the consumer of the goods or service must have a GSTIN.
- Business to Consumer (B2C): In a B2C transaction under GST, the recipient of the goods or service would not be eligible for receiving the input tax credit.
In a B2C transaction, the recipient need not provide details of his/her GSTIN or GST registration. However, if the transaction value is more than Rs.2.5 lakhs, the recipient would have to furnish details like name, address, and other details to determine the place of supply.
