How to Calculate GST? GST (Goods and Service Tax) Guide 101?

Last Updated on July 26, 2023

Table of Contents

• How to calculate GST?
• Types of GST collections
• How to Calculate GST on goods and services?
• Frequently Asked Questions

How to calculate GST?

Implemented in 2017 with an aim to simplify the burdened taxation system of India, Goods and Services Tax is one of the most significant indirect tax reforms enacted in any democratic country in the world. Before this tax, goods and services were under various taxes such as excise, VAT, state government tax, and more. The overall process was very complex and lengthy. The government came up with the ‘one nation, one tax’ initiative which was first suggested by Asim Dasgupta Committee in 2011. 

The taxation system simplification went through multiple rounds of amendments and updates to make it customer-centric and hassle-free.

Types of GST collections

• SGST (State Goods and Services Tax): Replaced VAT, Sales tax, Entry tax, Entertainment tax and more.
• CGST (Central Goods and Services Tax): Replaced CST, SAD, State-tax and more.
• UTGST (Union Territory Goods and Services Tax): Applicable for goods and services in Indian union territories.
• IGST (Integrated Goods and Services Tax): Applicable on inter-state transaction of goods and services.

For Goods and Service Providers:

How to Calculate GST on goods and services?

The overall process for Goods and Services Tax calculation is relatively easy as different Goods and Services are segregated into different slab rates according to which taxes are calculated. Check the below steps to know the complete calculating process:

STEP 1: How to Calculate GST Percentage?

Determining the GST slab is the first step of determining the Goods and Services Tax amount associated with your service and goods. The Goods and Services Tax council has uploaded a complete list of details regarding the GST slabs of different goods and services. You can find the list here: http://www.gstcouncil.gov.in/uploaded-pdf-file-under-gst-rates. 

Meanwhile, some of the major Goods and Services Tax slab rates are presented in the below table.

NOTE: Goods and Services Tax Council frequently revises the goods and services tax slabs. Check the official notification to know the present tax rate. 

STEP 2: How to Calculate GST Payable?

Once you know the tax slabs applicable on your goods & services, it’s time to calculate the GST payable on that goods & services. This is where you can find the beauty of the tax simplification of GST. The formula for calculating GST payable is given below.

• GST Payable: (Original Cost Price) x (% GST Rate)/100
• Net Price to the Buyer: Original Cost Price + GST Payable

Different tax rates were charged at the manufacturer, retailer, and customer end, leading to a complex taxation mechanism and high price in the earlier taxation process. The central government used to charge excise duty at the manufacturing factories while the state government charged VAT. Under Goods and Services Tax, the taxes are charged only at the consumer end, saving hassle in the intermediate production levels. Since the goods & services were fixed under a particular tax slab, prices of many goods came down, which provided a huge relief to the consumers.

Prices of regular commodities such as soaps, shampoos, toothpaste, and milk powder came down drastically. Goods and Services Tax also has exempted many essential commodities from tax, such as wheat and rice. Let’s check some examples of Goods and Services Tax calculation.

Example 1: For Goods

Example 2: For Services

NOTE: Freelancers with turnover exceeding 20 lakhs in a year are mandatory required to register for Goods and Services Tax

For Customers

This section of the blog is dedicated to the consumers and final buyers who are paying the net price to the goods & service providers.

Understanding GST Inclusive & GST Exclusive Amount:

• Goods and Services Tax Inclusive: The net amount is payable to the goods & service providers that includes the GST portion and the cost price. You don’t need to pay anything extra over this price.
• Goods and Services Tax Exclusive: The cost price of the goods & services includes the manufacturer/ service provider’s profit margin. Hence, remain aware that it is not the final price as the GST tax would be applied on it before the final purchase.

Removing Goods and Services Tax from the Base Price: 

• GST Amount = Base Cost Price – [Original Cost x {100/ (100+GST %)}]
• Net Price: Base Cost Price – GST Amount

NOTE: Be a rational and educated consumer. Never pay anything more than the MRP price because it includes the Goods and Services Tax portion in it. It is not calculated over the MRP price listed on the goods.

Frequently Asked Questions:

1. How is Goods and Service calculated?

GST is calculated based on the tax slab that accompanies that particular goods & service and the tax rate is added to the base price to calculate the net payable amount.

2. What are the different tax slabs in the GST?

There are four broad divisions of tax slabs which are 5%, 12%, 18% and 28%. The GST council is planning to simplify these four slabs and make lesser and uniform tax slabs.

3. Do I need to pay Goods and Services Tax on MRP also?

Remember that MRP price is inclusive of GST taxes, and you don’t need to pay an extra amount on MRP in the name of taxes.

4. Which tax slab is applicable to my service?

You need to consult a financial expert to find out all the information regarding your tax structure and you can contact us for the same.

5. How can I file my GST?

You need to register for the GST on the portal and generate your unique GSTIN number, and you can also consult a financial expert for more guidance.