To calculate GST, the following aspects in a transaction must be considered in a logical step by step manner.
Step 1: Find the GST Rate Applicable for the Goods or Service
The first step in calculating GST is to seek out the GST Rate applicable for the Goods or Service under the GST Act. Over the past month, the GST Council has sent GST rates for nearly all merchandise and services in India.
Now depending upon the type of supply there are two ways to calculate the GST through HSN Code and SAC Code.
To find GST Rate, First make a distinction between the type of supply i.e., is it a good or a service.
If the supply is a good, then its important to interpolate with the HSN Code applicable for the Good. 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.
GST is levied under 5 different slab rates at NIL, 5%, 12%, 18% and 28% for both goods and services.
Step 2: Determine the Applicability of IGST or CGST and SGST
Once the GST rate is known, 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.
In most cases, the place of supply of goods or services would be the address where the goods were delivered or the service was provided. And for some other types of transactions, involving e-commerce or OIDAR services the determination of place of supply is a more complex issue.
If goods or services are provided within two states, i.e., from one state to another, then IGST or Integrated Goods and Services Tax is applicable on the transaction. Whenever any supplier is involved in providing inter-state supply, GST registration is necessary.
If the supplier provides the goods or service 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 and the supply is inter-state, then the entire GST applicable for the HSN or SAC code must be accounted under IGST.
If CGST and SGST is applicable and the supply is intra-state, then the GST applicable for the HSN or SAC code would be divided between CGST and SGST.
The calculation for IGST, CGST or SGST is merely for classification purposes for crediting the tax revenue to the state of consumption. The GST tax rate would remain same and there would be no double-taxation.
Step 3: Determine whether the GST is Chargeable on Reverse Charge Basis
Normally under GST, the provider of the products or service is prone to collect tax from the recipient and remit the same with the govt. .However, the recipient shall become liable if the services provided to the user is notified as reverse charge services.
Hence, the user and therefore the service supplier should know whether the dealings involve reverse charge under the GST or not.
Step 4: Enrolling under GST Composition Scheme by Suppliers
Typically, GST compliance needs the supplier to maintain extensive accounts, records and file 3 GST filing in a month. However, many SMEs in India would find GST compliance difficult and require a simpler mechanism.
Such businesses having a turnover of not more than Rs.75 lakhs, can enroll 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.
Step 5: Determine Type of Transaction
Under GST, transactions can be broadly classified into the three categories:
- Business to Business. (B2B)
- Business to Consumer – (B2C) Value of supply more than Rs.2.5 lakh,
- Business to Consumer – (B2C) Value of supply less than Rs.2.5 lakh.
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. GSTIN is provided when a business obtains GST registration.
B2C In a B2C transaction under GST, the recipient of the goods or service would not be eligible for receiving the input tax credit. However, 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.