What Is GST?
In 2017, the Government of India had introduced a comprehensive taxation scheme called Goods and Service Tax (GST)which merged various indirect taxes. Applicable from July 1st, 2017, the GST scheme was rolled out to declutter the erstwhile multiple taxation system under the initiative of “One Nation One Tax”. The new scheme is also aimed to calculate their GST and also update, at the same time, reducing the burden of taxpayers to comply with multiple jurisdictions. However, with the new taxation scheme, businesses need to calculate their GST and also update their systems to comply with the new scheme. In this article, we will aid you in understanding in and out of the new GST Scheme, methods of GST calculation, and the use of online GST calculators to calculate your tax amount. So, without further ado, let’s dive in!
Tax Structure of GST:
In the new GST scheme, there is a 4-tier taxation structure under which various commodities are categorized into. These are:
Besides these 4, there are 2 more categories in the GST - 0% slab where the basic agriculture product and PMJDY services are listed and a 0.25% slab where semi-precious stone and cut stones are listed in.
Various components of GST:
There are 4 separate components of the GST. These are:
- State Goods and Services Tax (SGST):
This component of the GST is collected by the state governments.
- Central Goods and Services Tax (CGST):
It is the central government component of the GST.
- Union Territory Goods and Services Tax (UTGST):
Similar to SGST, this component is collected by union territories.
- Integrated Goods and Services Tax (IGST):
It is collected by the central government when any inter-state transactions are conducted.
Moreover, in the case of IGST, whenever a transaction is conducted across the state, an equal rate of CGST and SGST is levied.
How to calculate GST?
The GST calculation procedure is fairly simple, and the same procedure is even used in online GST calculators as well. The basic formula is:
GST Amount = (Cost of product x GST% on that product)/100
So,
Net Price = Cost of the product + GST Amount
Moreover, GST is a multi-stage destination-based taxation scheme i.e., GST is calculated on each and every stage of the production. However, it is levied on the destination only i.e., charged to the end user only, and tax levied on all of the previous stages are subtracted at the end.
Example of GST Calculation:
Suppose you went out to buy a car of Rs. 5 Lakhs. As mentioned above, the cars and other vehicles are kept under the 28% slab (along with some Cess tax). So the GST amount levied on your car will be:
GST Amount: 28% of Rs. 5 Lakh = Rs. 1,40,000.
So, the net amount of the vehicle: 5,00,000 + 1,40,000 = Rs. 6,40,000.
Comparison between GST and previous taxation scheme:
The new taxation scheme after the implementation of GST has been beneficial for both the manufacturer as well as the end-user. The new scheme has curbed the earlier system of ‘Tax on Tax’. Now, there is a single tax i.e. GST, that is levied on goods and services. Earlier, there were multiple taxes like Excise Tax, Value Added Tax (VAT), Service Tax, and so on. Let’s observe the change in the cost of a product under the old and the new tax regime.
Suppose the cost of production of a product is Rs. 1,00,000.
Under the old taxation scheme:
- Excise Duty:
12% of the cost of production = 12% of Rs. 1,00,000 = Rs. 12,000.
- VAT
12.5% of the cost of production = 12.5% of Rs. 1,00,000 = Rs. 12,500.
Net Price =Cost of manufacturing + Total Tax = Rs. 1,00,000 + VAT + Excise Duty = Rs. 1,24,500.
Under the GST scheme:
- GST amount:
18% of cost of manufacturing = 18% of Rs. 1,00,000 = Rs. 18,000.Net Amount = Cost of manufacturing + GST amount = Rs. 1,00,000 + Rs. 18,000 = Rs. 1,18,000.
As you can see from the example, the GST has reduced the tax burden on individual taxpayers. At the same time, it has increased the umbrella of individuals falling under tax brackets. With the GST in place, each company has to file their GST returns and register themselves on the GST portal.
Cost of products pre- and post-GST implementation:
Suppose a product ‘X’ is manufactured in Kanpur and is transported to Mumbai for selling and its initial cost is Rs. 2000. Under the new scheme, the CGST, the SGST, and the ISGT will be levied on the product. At the same time, under the old scheme, the CST and VAT will be levied on the product. So, let’s compare the prices:
| Pre GST Tax | Post GST Tax |
| Price of product ‘X’ sold from Kanpur to Mumbai = Rs. 2000 | Price of product ‘X’ sold from Kanpur to Mumbai = Rs. 2000 |
| VAT @ 12% = Rs. 240 | CGST @ 5% = Rs. 100 + SGST @ 5% = Rs.100 |
| Product cost sold from Kanpur to Mumbai = Rs.2,000 + VAT = Rs.2,240. | Product cost sold from Kanpur to Mumbai = Rs.2,000 + GST = Rs.2,200. |
| Profit = Rs.1,000 | Profit = Rs.1,000 |
| Selling price (SP) = Rs.3,240 | Selling price (SP) = Rs.3,200 |
| CST @ 10% = Rs. 324 | IGST @ 10% = Rs. 320 |
| Total cost of the product ‘X’ = Rs.3,324. | Total cost of the product ‘X’ = Rs.3,320. |
How to use an online GST calculator?
If you are a business owner who is looking to calculate their GST, online GST calculators can be a one-stop solution for all your tax-related queries. There are several websites available on the internet that provide online GST calculators for users. Here is a step-wise guide to leverage them:
Pick any one option i.e., GST Inclusive / GST exclusive, from the option provided on the website.
Fill in the actual price of the product.
Choose the GST percent slab that is applicable to the product.
Select the “Calculate” option to find out the final amount of the product.
You can find out more details like the percentage slab of any particular product or any other jurisdiction related to GST on the official GST portal. You can also check out the local GST jurisdiction by visiting the GST portal of the state or the union territory where you conduct your business.
Advantages of GST:
As per the Government of India (GOI), the GST is a big step toward transforming the taxation system in India and achieving the dream of a 5-trillion dollar economy. The GST scheme is also a positive step toward making India a global economy. Some of the other perks of the GST regime are:
Decrease in cost: After implementing GST, the cost of several products has gone down. Under the old regime, a ‘Tax on Tax’ structure in place increased the cost of several products. But, GST has reduced the tax burden on individuals. With the reduction in tax, there is a higher probability of an increase in the production of goods.
Simplification of tax structure:Under the GST, several indirect taxes have been unified. It has eased out the calculation of taxes.
Uniformity in taxes:In the old scheme, a number of things were not defined. One such example is E-commerce transactions. There were no specific provisions for them, and they were charged different taxes in different states. In GST, all such anomalies have been worked out.
Increase in Exports:Since GST has decreased the production cost, the products made in India have better chances of competing with international players. This will also have a positive impact on the export of products out of the country.
Decrease in Inflation:With the GST regime in place, there is a probability of a decrease in market inflation.
Streamlining of jurisdiction:Since GST is aimed to unify the taxes in the country, there is a better opportunity of understanding between the state and the centre when it comes to the distribution of taxes.
Drawbacks of GST
There are a few cons of GST as well. Since the GST is a new tax scheme, there are several issues that need to be addressed. Some of them are:
The new tax scheme has increased the cost of operation of the businesses. Now, they have to comply with the new scheme and rework their systems as per the GST scheme.
The GST scheme is technology savvy, i.e. it requires proper training of resources and adds cost to businesses.
Compliance is also a big problem for businesses. A number of states don’t have a proper working GST portal, adding up to the problem of small and medium businesses (SMBs).
Conclusion
The Goods and Service Tax has been rolled out to eliminate the fundamental problems in the tax regime in India i.e. decluttering and unification of taxation structure. Under the new regime, every enterprise, in spite of their size and region of operation, has to register themselves to the GST portal. Although it will increase the burden for small and medium businesses, with online GST calculators at your disposal, you can handle your taxes without much hassle.
Frequently asked questions (FAQs) related to online GST calculators
What is an online GST calculator?
It is a simple financial tool available online that a business entity or taxpayer can leverage to calculate the GST amount levied on a particular product.
What are the benefits of an online GST calculator?
With the help of an online GST calculator, you can save time and manual effort that goes into calculating the GST amount. It will also eliminate human error.
Is the GST Identification Number (GSTIN) mandatory?
Yes, GSTIN is mandatory in India for conducting any business. You can file for your unique GSTIN by visiting the official GST portal. Registering for GST is quite simple. You just need to fill in some basic details related to your business. Once you fill in all the details, you will get a temporary number, and within 7 to 14 days, a permanent GSTIN number will be assigned to you.
Who is responsible for deciding the rates of GST in India?
The GST Council is responsible for deciding the rates of GST in India. It comprises the union finance minister and the finance ministers of the states.
Is there a need for liquor traders to register for GST?
No, since liquor was not brought under the purview of the GST regime, there is no need for a liquor trader to register for GST.
What are the indirect taxes that were subsumed under the GST regime?
In the new GST regime, both the central and the state governments have to let go of their taxes. While the central government has to let go of taxes including Excise tax, Service Tax, Countervailing Duty under the GST, the state government’s tax like VAT, Octroi, Luxury Tax, and Entertainment Tax has also been subsumed in the Goods and Service Tax.
Why do we need dual GST in India?
Since we have a federal structure of government in India i.e. both the union government and the state governments have some separate responsibilities and they need to generate revenue to fulfil those, we have a dual GST structure in India. The dual GST structure will strengthen the federal structure and will ease out the jurisdiction between the centre and the state.
