CA. RAJAT MOHAN
B.Com(H), A.C.A., D.I.S.A.
1. Introduction
Last month a colleague of mine has just sent me an email relating to a very important meeting. The email was supposed to contain key information that I needed to present, as part of the business case for an important project. But there’s a problem: I was not able to understand quickly. Then I felt that in today’s information overload world, it’s vital to communicate clearly, concisely and effectively. People don’t have time to read book-length materials, and they don’t have the patience to scour badly-constructed materials for “buried” points.
Then I asked my self a question “why not I shall convert the complete Goods and Service Tax in a series of examples”. So here I am giving you GST all in form of examples and that too without using any jargons.
2. Developments in GST till now
Idea of national GST was first mooted by Kelkar Task Force in 2004. A task force was formed under Chairmanship of Shri Vijay Kelkar on Implementation of Fiscal Responsibility and Budget Management Act. The Kelkar Committee submitted its report in July 2004. The Committee strongly recommended fully integrated ‘GST’ on national basis. Since then there have been several government documents on this subject of GST. Out of these several government documents following reports were presented were most relevant and important:
| Government Authority | Report name | Month of issue |
| Empowered Committee Of State Finance Ministers | A Model Roadmap for Goods and Services tax in India | 2008 |
| Department of Economic Affairs
Ministry of Finance Government of India |
GST Reforms and Intergovernmental
Considerations in India |
March 2009 |
| Empowered Committee Of State Finance Ministers | First Discussion Paper
On Goods and Services Tax In India |
November 2009 |
| Task force set up by 13th Finance Commission | Report of task Force – 13th Finance Commission | December 2009 |
| National Council of Applied
Economic Research |
Moving to Goods and
Services Tax in India: Impact on India’s Growth and International Trade |
December 2009 |
| Department of Revenue | Comments of Department of Revenue on First Discussion paper | January 2010 |
3. Illustration
3.a) Example – Basic Example
Mr. A manufactures goods. He bought goods for Rs. 1,20,000 and incurred expenses of Rs. 10,000. These manufactured goods were sold for Rs. 145,000.
GST Rate 12%. Compute Sale Price.
Solution
| Particulars | Amount (Rs.) |
| Cost of Goods | 120000 |
| Add: Expenses | 10000 |
| Add: Profit | 15000 |
| Sales | 145000 |
| GST 145000 @ 12% | 17400 |
| Sales Price | 162400 |
3.b) Example
Mr. A manufactures goods. He bought goods for Rs. 56,000 and incurred expenses of Rs. 74,000. These manufactured goods were sold inter-state at Rs. 145,000 plus applicable GST. Rate of SGST and CGST is 7% and 5% respectively.
Compute GST payable.
Solution
| Particulars | Amount
(Rs) |
| Cost of Goods | 56000 |
| Add: Expenses | 74000 |
| Add: Profit | 15000 |
| Sales | 145000 |
| IGST* 145000 @ 12% | 17400 |
| Sales Price | 162400 |
* IGST (12%) = CGST (5%) + SGST (7%)
3.c) Example – Manufacturer vs. Wholesaler vs. Retailer
Let us understand the working of GST on a manufactured commodity from point of view of a manufacturer, wholesaler, retailer and final consumer.
Assuming GST rate is 10%,
Table
| Stage of
Supply Chain |
Purchase
Value of Input |
Value
Addition |
Value of supply | Rate
Of GST |
GST
on output |
ITC | Net GST = GST on
Output – ITC |
| Manufacturer | 100 | 30 | 130 | 10% | 13 | 10 | 13-10 = 3 |
| Wholesaler | 130 | 20 | 150 | 10% | 15 | 13 | 15-13 = 2 |
| Retailer | 150 | 10 | 160 | 10% | 16 | 15 | 16-15 = 1 |
Manufacturer
Manufacturer making value addition of Rs.30 on his purchases worth Rs.100 of input of goods and services used in the manufacturing process. The manufacturer will then pay net GST of Rs. 3 after setting-off Rs. 10 as GST paid on his inputs (i.e. Input Tax Credit) from gross GST of Rs. 13. The manufacturer sells the goods to the wholesaler.
Wholesaler
When the wholesaler sells the same goods after making value addition of Rs. 20, he pays net GST of only Rs. 2, after setting-off of Input Tax Credit of Rs. 13 from the gross GST of Rs. 15 to the manufacturer.
Retailer
When a retailer sells the same goods after a value addition of Rs. 10, he pays net GST of only Re.1, after setting-off Rs.15 from his gross GST of Rs. 16 paid to wholesaler.
Thus, the manufacturer, wholesaler and retailer have to pay only Rs. 6 (i.e. Rs. 3+Rs. 2+Re. 1) as GST on the value addition along the entire value chain from the producer to the retailer, after setting-off GST paid at the earlier stages.
That is to say final price paid by consumer is Rs. 160 + 10% x 160 = 176.
3.d) Example – Input Tax Credit – 1
Mr. A manufactures goods. He bought goods for Rs. 56,000 (including GST paid @12%) and incurred expenses of Rs. 74,000. These manufactured goods were sold for Rs. 145,000 plus applicable GST. Rate of SGST and CGST is 7% and 5% respectively.
Compute output GST & GST payable.
Solution
| Particulars | Amount(Rs) |
| Cost of Goods | 56000 |
| Add: Expenses | 74000 |
| Add: Profit | 15000 |
| Sales | 145000 |
| CGST 145000 @ 5% | 7250 |
| SGST 145000 @ 7% | 10150 |
| Sales Price | 162400 |
Input Tax Credit
In this, Cost of Goods sold of Rs 56000 includes GST @ 12%. So, we will calculate the value of goods purchased by back calculations.
Value of goods = 56000 x 100 = 50000
100+12
| Particulars | Total value | CGST | SGST | Value net of GST |
| Cost of Goods | 56000 | 2500 | 3500 | 50000 |
Tax Payable Calculation
| Particulars | CGST | SGST |
| Output GST | 7250 | 10150 |
| Less: Input Credit | 2500 | 3500 |
| Tax payable by cash | 4750 | 6650 |
3.e) Example – Input Tax Credit -2
Ram, a dealer purchased 20,000 liters of inputs on which SGST and CGST paid at the rate of 7% and 5%. Input tax credit available for SGST and CGST is Rs. 10,500 and Rs. 7,500 respectively.
He manufactured 18,000 liters of finished products from the inputs. 2,000 liters was normal loss in the process. The final product was sold at uniform price of Rs. 10 per liter as follows:-
- Goods sold within State – 8,000 liter.
- Finished product sold in inter-State sale – 6500 liter.
- Goods sent on stock transfer to consignment agents outside the State – 3,500 liter.
SGST and CGST rate on the finished product of dealer is 7% and 5% respectively.
Calculate liability of SGST and CGST. Find Input tax credit available to dealer and tax required to be paid in cash.
Solution
Output Tax Calculation
| Description
|
Quantity
Sold (liter) |
Value
of Goods sold |
CGST
@ 5% (Rs.) |
SGST
@ 7% (Rs.) |
IGST
@ 12% (Rs.) |
| Sale within State | 8,000 | 80000 | 4000 | 5600 | Nil |
| Goods sent on stock transfer to consignment agents outside the State | 3,500 | 35000 | Nil | Nil | 4200 |
| Goods sold Inter-State | 6500 | 65000 | Nil | Nil | 7800 |
| Total | 18,000 | 1,80,000 | 4000 | 5600 | 12000 |
Tax Payable Calculation
| Particulars | CGST
(Rs.) |
SGST
(Rs.) |
IGST
(Rs.) |
| Output tax | 4000 | 5600 | 12000 |
| Less: Input tax credit | |||
| CGST Rs.7500 | (4000) | – | (3500) |
| SGST Rs.10500 | – | (5600) | (4900) |
| Net tax payable | NIL | NIL | 3600 |
SGST and CGST of Rs. 10,500 and Rs. 7,500 are paid on inputs. This input tax credit should first be utilized for payment of CGST and SGST, respectively, and balance is to be used for payment of IGST. Thus, balance available for payment of IGST is Rs. 3500 of CGST and Rs. 4900 of SGST and he is liable to pay balance amount of IGST of Rs. 3600 by cash.(12000-3500-4900 = 3600).
Since credit of SGST of Rs.4900 has been utilized for payment of IGST, the State Government will get debit of Rs. 4900 from the Central Government.
3.f) Example – Input Tax Credit -3
Ram, a dealer purchased 20,000 liters of inputs on which SGST and CGST paid at the rate of 7% and 5%.Input tax credit available for SGST and CGST are Rs. 14,000 and Rs. 10,000 respectively. He manufactured 18,000 liters of finished products from the inputs. 2,000 liters was normal loss. The final product was sold at uniform price of Rs. 10 per liter as follows:-
1. Goods sold within State – 8,000 liter.
2. Finished product sold in inter-State sale – 6500 liter.
3. Goods sent on stock transfer to consignment agents outside the State – 3,500 liter.
SGST and CGST rate on the finished product of dealer is 7% and 5% respectively.
Calculate liability of SGST and CGST. Find Input tax credit available to dealer and tax required to be paid in cash.
Solution
Output Tax Calculation
| Description
|
Quantity
Sold (liter) |
Value
of Goods sold |
CGST
@ 5% (Rs.) |
SGST
@ 7% (Rs.) |
IGST
@ 12% (Rs.) |
| Sale within State | 8,000 | 80000 | 4000 | 5600 | Nil |
| Goods sent on stock transfer outside State | 3,500 | 35000 | Nil | nil | 4200 |
| Goods sold Inter-State | 6500 | 65000 | Nil | nil | 7800 |
| Total | 18,000 | 1,80,000 | 4000 | 5600 | 12000 |
Tax Payable Calculation
| Particulars | CGST
(Rs.) |
SGST
(Rs.) |
IGST
(Rs.) |
| Output tax | 4000 | 5600 | 12000 |
| Less: Input tax credit | |||
| CGST Rs.10000 | (4000) | – | (6000) |
| SGST Rs.14000 | – | (5600) | (6000) |
| Net tax payable | NIL | NIL | NIL |
SGST and CGST of Rs. 14,000 and Rs. 10,000 are paid on inputs. This input tax credit should first be utilized for payment of CGST and SGST, respectively, and balance is to be used for payment of IGST. Thus, balance available for payment of IGST is Rs. 6000 of CGST and Rs. 6000 of SGST.(Remaining balance of Rs. 2400 is still available for input tax credit in respect of SGST, i.e. (14,000-5,600-6,000 = 2400)
Since credit of SGST of Rs.6000 has been utilized for payment of IGST, the State Government will get debit of Rs. 6000 from the Central Government.
3.g) Example – Input Tax Credit -4
Ram, a dealer purchased 20,000 liters of inputs on which SGST and CGST paid at the rate of 7% and 5%.Input tax credit available for SGST and CGST are Rs. 14,000 and Rs. 10,000 respectively.
He manufactured 18,000 liters of finished products from the inputs. 2,000 liters was normal loss. The final product was sold at uniform price of Rs. 10 per liter as follows:-
- Goods sold within State – 8,000 liter.
- Finished product sold in inter-State sale – 6500 liter.
- Goods Exported to Australia – 3,500 liter.
SGST and CGST rate on the finished product of dealer is 7% and 5% respectively.
Calculate liability of SGST and CGST. Find Input tax credit available to dealer and tax required to be paid in cash.
Solution
Output Tax Calculation
| Description | Quantity
Sold (liter) |
Value
of Goods sold |
CGST
@ 5% (Rs.) |
SGST
@ 7% (Rs.) |
IGST
@ 12% (Rs.) |
| Sale within State | 8000 | 80000 | 4000 | 5600 | Nil |
| Exported (Zero rating) | 3500 | 35000 | Nil | nil | Nil |
| Goods sold Inter-State | 6500 | 65000 | nil | nil | 7800 |
| Total | 18,000 | 180000 | 4000 | 5600 | 7800 |
As finished product is exported, then there will be no tax liability. Hence, IGST will be Rs.7,800.
Tax Payable Calculation
| Particulars | CGST
(Rs.) |
SGST
(Rs.) |
IGST
(Rs.) |
| Output tax | 4000 | 5600 | 7800 |
| Less: Input tax credit | |||
| CGST Rs. 10000 | (4000) | – | (6000) |
| SGST Rs. 14000 | – | (5600) | (1800) |
| Net tax payable | NIL | NIL | NIL |
SGST and CGST of Rs. 14,000 and Rs. 10,000 are paid on inputs. This input tax credit should first be utilized for payment of CGST and SGST, respectively, and balance is to be used for payment of IGST. Thus, balance available for payment of IGST is Rs. 6000 of CGST and Rs. 1800 of SGST.(Remaining balance of Rs. 6600 is still available for input tax credit in respect of SGST, i.e. (14,000-5,600-1,800 = 6600)
Since credit of SGST of Rs.1800 has been utilized for payment of IGST, the State Government will get debit of Rs. 1800 from the Central Government.
3.h) Example – Input Tax Credit -5
Ram, a dealer, located at Delhi, purchased 20,000 liters of inputs from Maharashtra. Input tax credit available for IGST is Rs. 8,000.
He manufactured 18,000 liters of finished products from the inputs. 2,000 liters was normal loss. The final product was sold at uniform price of Rs. 10 per liter as follows:-
1. Goods sold within State – 8,000 liter.
- Finished product sold in inter-State sale – 6500 liter.
- Goods sent on stock transfer to consignment agents outside the State – 3,500 liter.
SGST and CGST rate on the finished product of dealer is 7% and 5% respectively.
Calculate liability of SGST and CGST. Find Input tax credit available to dealer and tax required to be paid in cash.
Solution
Output Tax Calculation
| Description
|
Quantity
Sold (liter) |
Value
of Goods sold |
CGST
@ 5% (Rs.) |
SGST
@ 7% (Rs.) |
IGST
@ 12% (Rs.) |
| Sale within State | 8,000 | 80000 | 4000 | 5600 | Nil |
| Goods sent on stock transfer Outside State | 3,500 | 35000 | Nil | nil | 4200 |
| Goods sold Inter-State | 6500 | 65000 | Nil | nil | 7800 |
| Total | 18,000 | 1,80,000 | 4000 | 5600 | 12000 |
Tax Payable Calculation
| Particulars | CGST
(Rs.) |
SGST
(Rs.) |
IGST
(Rs.) |
| Output tax | 4000 | 5600 | 12000 |
| Less: Input tax credit | |||
| IGST Rs. 8000 | – | – | (8000) |
| Net tax payable | 4000 | 5600 | 4000 |
The IGST paid should first be utilized for payment of IGST. Hence, he should utilize entire Rs. 8,000 for payment of IGST.
3.i) Example – Input Tax Credit -6
Ram, a dealer, located at Delhi, purchased 20,000 liters of inputs from Maharashtra. Input tax credit available for IGST is Rs. 16,000.
He manufactured 18,000 liters of finished products from the inputs. 2,000 liters was normal loss. The final product was sold at uniform price of Rs. 10 per liter as follows:-
- Goods sold within State – 8,000 liter.
- Finished product sold in inter-State sale – 6500 liter.
- Goods sent on stock transfer to consignment agents outside the State – 3,500 liter.
SGST and CGST rate on the finished product of dealer is 7% and 5% respectively.
Calculate liability of SGST and CGST. Find Input tax credit available to dealer and tax required to be paid in cash.
Solution
Output Tax Calculation
| Description
|
Quantity
Sold (liter) |
Value
of Goods sold |
CGST
@ 5% (Rs.) |
SGST
@ 7% (Rs.) |
IGST
@ 12% (Rs.) |
| Sale within State | 8,000 | 80000 | 4000 | 5600 | Nil |
| Goods sent on stock transfer Outside State | 3,500 | 35000 | Nil | nil | 4200 |
| Goods sold Inter-State | 6500 | 65000 | Nil | nil | 7800 |
| Total | 18,000 | 1,80,000 | 4000 | 5600 | 12000 |
Tax Payable Calculation
| Particulars | CGST
(Rs.) |
SGST
(Rs.) |
IGST
(Rs.) |
| Output tax | 4000 | 5600 | 12000 |
| Less: Input tax credit | |||
| IGST Rs. 16000 | (4000) | (4000) | (8000) |
| Net tax payable | 4000 | 1600 | 4000 |
The IGST paid should first be utilized for payment of IGST, then CGST and finally for SGST.
3.j) Example – Input Tax Credit -6
Inputs worth Rs. 1,00,000 (excluding GST @12%) were purchased within the State.
CGST and SGST paid on procurement of capital goods worth Rs. 1,00,000 during the month was at 8,000 each.
Rs. 3,00,000 worth of finished goods were sold within the State and
Rs. 1,00,000 worth of goods were sold in the course of inter-State trade.
If the input and output tax rates in the State are 7 % and 5 % of SGST and CGST, find the total tax liability.
Solution
Output Tax Calculation
| Description
|
Value
of Goods sold |
CGST
@ 5% (Rs.) |
SGST
@ 7% (Rs.) |
IGST
@ 12% (Rs.) |
| Sale within State | 300000 | 15000 | 21000 | nil |
| Goods sold Inter-State | 100000 | nil | Nil | 12000 |
| Total | 400,000 | 15000 | 21000 | 12000 |
Tax Payable Calculation
| Particulars | CGST
(Rs.) |
SGST
(Rs.) |
IGST
(Rs.) |
| Output tax | 15000 | 21000 | 12000 |
| Less: Input tax credit | |||
| Capital goods | (8000) | (8000) | – |
| Inputs | (5000) | (7000) | – |
| Net tax payable | 2000 | 6000 | 12000 |
Since no credit of SGST has been utilized for payment of IGST, there will be no debit to the State Government.
3.k) Example – Import
Mr. A imported goods for Rs. 56,000 and incurred expenses to produce final saleable goods.
BCD @ 10 % was chargeable on imported goods.
These manufactured goods were sold within the state at Rs. 145,000 plus applicable GST. Rate of SGST and CGST is 7% and 5% respectively.
Compute GST payable.
Solution
Calculation of Net cost of imported goods
| Particulars | Amount
(Rs) |
| Cost of Goods imported | 56000 |
| Add: Basic Customs Duty @ 10% | 5600 |
| Cost of imported goods (including BCD) | 61600 |
| Add: CGST on Import @ 5% | 3080[See Note 1] |
| Add: SGST on Import @ 7% | 4312[See Note 2] |
| Cost of imported goods (including BCD & GST) | 68992 |
| Particulars | Amount(Rs) |
| Sale Value | 145000 |
| Add: CGST on Import @ 5% | 7250 |
| Add: SGST on Import @ 7% | 10150 |
| Sales | 162400 |
Tax Payable Calculation
| Particulars | CGST
(Rs.) |
SGST
(Rs.) |
| Output tax | 7250 | 10150 |
| Less: Input tax credit | ||
| CGST | (3080) | – |
| SGST | – | (4312) |
| Net tax payable | 4170 | 5838 |
3.l) Example – Export
Rahul purchased goods worth Rs.2000. He paid Rs.500 as expenses to labour. Also, profit of Rs.250 is added to these goods, He ultimately sold these goods to Jatin. Jatin exports these goods to Mr. Bersolini in Russia. Assuming the GST rate as 10% on input and output, Calculate GST payable.
Solution
Mr. Rahul
| Particulars | Amount
(Rs.) |
Input GST
(Rs.) |
Net Payable
(Rs.) |
| Cost of goods purchased | 2000 | 200[See Note 3] | |
| Add: Labor | 500 | ||
| Add: Profit | 250 | ||
| Value of goods sold (without GST) | 2750 | ||
| Add: GST @ 10% | 275 | 200 | 75 |
| Total Selling Price | 3025 |
Mr. Jatin
| Particulars | Amount
(Rs.) |
Input GST
(Rs.) |
Net Payable
(Rs.) |
| Cost of goods purchased | 2750 | 275 | |
| Add: Labor | 500 | ||
| Add: Profit | 250 | ||
| Value of goods sold (without GST) | 3500 | ||
| Add: GST @ 10% | 0 | 0 | 0 |
| Total Selling Price | 3500 |
Final Analysis
| Particulars | Zero rating Economy |
| SP to consumer | 3500 |
| Total Levy of GST | 275 |
| Less: Refund adjustment | (275) |
| Net levy of GST | 0 |
Notes to above
[1] Assuming that GST would be levied on cost of imported goods including Basic Customs Duty.
[2] Assuming that GST would be levied on cost of imported goods including Basic Customs Duty.
[3] Assuming 10% GST was paid on inputs.
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
F-31 D.B. Gupta Market, Karol Bagh, New Delhi
Office Phone: 011-23672609 / 23535809
Mobile: 9910044223
Web url: www.delhicamohan.com
HOW TO CONSIGMENT SALE PROFIT
How will a buyer purchase a good with 12% tax when it is just 2% for interstate cst
Boss , I have a query .
Suppose I buy a good in India for INR 100 & paid a GST of 20 to make overall purchase value of 120 . Now I take this good outside India & then use it / Sell it .
Now , in this case , I wnt be able to take any credit wast soever. As a result , whole chain is disrupted . How will this be sorted out ?
Manufacturer —> Wholesaler —> Retailer —> end Consumer (me)… In every step , there is adjustment of differential GST but here end loop is not completed as last step is missing
dear sir , i have seen the examples which explain the working of gst in a nice way, i would like to know in case of goods being purchased from a farmer what would be the pattern
KVNV Prasad
Actually there is not technical difference between VAT and GST. In European countries it is known as VAT and in other countries as GST. The basic objective of either of them is to avoid cascading of taxes, input credit being available and a single tax being administered by the federal government for goods and services as a single tax. In India even though we have VAT it is not full fledged as it is as at state level and still there is cascading of taxes. The proposed GST is supposed to address the same but with a caveat that it will not be federal administered tax but dual mechanism due to our constitutional mechanism of tax being levied both by state and center.
regards
Mallikarjuna Gupta
r
Dear Mr. Rajat Mohan,
GST has been explained nicely with the help of examples. As per the provisions of the GST, as of now, there is additional non refundable tax of 1% by CG in the movement of goods for the purpose of stock transfers( material to material or otherwise) and onward processing of material (job work). Do you not think it will add to the cost of input?
I am SAP MM Consultant and we are a;most finalist the scenario for the settings in the SAP systems. Now the only thing is finalization from the GOI to give GST a final shape of the % of taxes on CGST AND SGST.
Any how, you may please look into the above aspect of additional 1% CG tax on movement of goods, thereby increasing input cost.
Thanks and warm regards,
Rajneesh Srivastava
Sr. SAP MM Consultant
9650477004
please confirm me
GST is reform of VAT +CST + EXCISE and other tax
but what is SGST,CGST and IGST
Hello Sir,
In the example 3.d) , CGST 5% and SGST 7% are calculated on 1,45,000.
But 1,45,000 contains 56,000 which has a tax component of 6000.
So, this is a case of double taxation. According to me the figure on which CGST and SGST are calculated should be 1,39,000.
Kindly correct me if I am wrong.
Thank You,
Kaushal Kulkarni
Very Thanks Mr.Mohan
Can we know the differences between VAT & GST
Thanks for the article. It was good. Now one question posed to me is as follows:-
An NGO registered under section 12A and 80G of IT Act acts to promote use of free software Linux, and carries out campaigns and seminars, the cost of which is met from various sponsors. There is no commercial service.
Now the NGO does not have full infrastructure, therefore, it outsources part of the work to various entities. They are insisting to charge service tax.
Is the NGO liable to charge service tax, and also pay the same when billed?