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:-

  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 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:-

  1. Goods sold within State – 8,000 liter.
  2. Finished product sold in inter-State sale – 6500 liter.
  3. 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.

  1. Finished product sold in inter-State sale – 6500 liter.
  2. 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:-

  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
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

More Under Goods and Services Tax

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10 responses to “Basics of Goods and Service Tax with Help of Examples”

  1. GHANSHYAM PRAJAPAT says:

    HOW TO CONSIGMENT SALE PROFIT

  2. raj says:

    How will a buyer purchase a good with 12% tax when it is just 2% for interstate cst

  3. amol mahajan says:

    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

  4. rajen bansal says:

    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

  5. Gupta says:

    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

  6. Rajneesh Srivastava says:

    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

  7. Abdullah says:

    please confirm me

    GST is reform of VAT +CST + EXCISE and other tax
    but what is SGST,CGST and IGST

  8. Kaushal Kulkarni says:

    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

  9. KVNV Prasad says:

    Very Thanks Mr.Mohan

    Can we know the differences between VAT & GST

  10. Vijay Kumar says:

    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?

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