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Goods and Services Tax (GST)

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Step 1: What is Tax and Why Do We Need GST?

Imagine you and your friends live in a big housing society. To live comfortably, you all need some common things, right? You need security guards at the gate, clean roads inside the society, a park for everyone to play in, and lights to see at night.

But who pays for all this? The security guard’s salary, the cost of building roads, planting trees in the park – all of this needs money. So, every family in the society contributes a small amount of money every month. This contribution is called a maintenance charge.

In a very similar way, a country is like a giant housing society, and the government is like the society management. The government provides us with many services: roads, hospitals, schools, defence forces to protect our country, and so much more. To pay for all these services, the government collects a small amount of money from the citizens. This money is called Tax.

So, what was the problem before GST?

Before 2017, our country had a very confusing tax system. Imagine ordering a pizza. You would have to pay one tax for the pizza itself (this was called VAT – Value Added Tax), another tax for the service of the waiter bringing it to you (Service Tax), and maybe some other small taxes too! It was like getting a bill with many different small charges, making it complicated.

The Grand Entry of GST!

To make things simple, the Government of India introduced GST on 1st July 2017.

GST stands for Goods and Services Tax.

  • Goods: Things you can touch and buy, like a book, a bicycle, or a packet of biscuits.
  • Services: Things that someone does for you, like a haircut, a taxi ride, or teaching.

The main idea of GST was “One Nation, One Tax”. This means, instead of having many different taxes on an item, there would be just one single tax across the entire country. So, going back to our pizza example, with GST, you just pay one single tax on the final bill. Simple and clean!

So, in this first step, we’ve learned:

  • Tax is the money we pay to the government so it can provide us with services.
  • Before GST, the tax system was very complicated with many different taxes.
  • GST was introduced to simplify this by having a single tax on goods and services.

Step 2: The Three Main Types of GST (CGST, SGST & IGST)

Now that we know GST is a single tax, let’s look at how the government collects it. Remember the tax money is shared between the Central Government (in New Delhi) and the State Governments (like Maharashtra, Punjab, etc.)? How this sharing happens depends on where the buying and selling is taking place.

This gives us two main types of sales:

  1. Intra-State Sale: (Sale within the same state)
  2. Inter-State Sale: (Sale from one state to another)

Let’s understand them one by one.

  1. Intra-State Sale (The Local Transaction)

The word “Intra” means within. So, an Intra-State sale is a transaction where the seller and the buyer are in the same state.

  • Example: A shopkeeper in Mumbai (Maharashtra) sells a saree to a customer in Pune (also in Maharashtra).

When a sale happens within the same state, the GST collected is split equally into two parts. Think of them as two brothers who always share everything 50-50.

  • CGST: Central Goods and Services Tax. This half of the tax goes to the Central Government.
  • SGST: State Goods and Services Tax. This half of the tax goes to the State Government where the sale is happening.

Let’s see a numerical example:

Suppose you buy a school bag for ₹1000 in your city. The GST rate on school bags is 12%. Since this is an Intra-State sale, this 12% tax will be broken down:

  • Total GST rate = 12%
  • CGST rate = Half of 12% = 6%
  • SGST rate = Half of 12% = 6%

So, the tax you pay will be:

  • CGST amount = 6% of ₹1000 = (6/100) * 1000 = ₹60
  • SGST amount = 6% of ₹1000 = (6/100) * 1000 = ₹60
  • Total Tax = ₹60 + ₹60 = ₹120. (Which is 12% of ₹1000)

Your final bill will be ₹1000 (bag) + ₹120 (tax) = ₹1120.

  1. Inter-State Sale (The Cross-Country Transaction)

The word “Inter” means between. So, an Inter-State sale is a transaction where the seller and the buyer are in different states.

  • Example: A farmer in Punjab sells wheat to a factory in Uttar Pradesh.

When a sale happens between two different states, the government wants to keep things simple. Instead of splitting, one single tax is charged. Think of this as the “big cousin” who manages the whole tax.

  • IGST: Integrated Goods and Services Tax. The “I” stands for Integrated, which means combined.

This entire tax is collected by the Central Government.

Let’s see a numerical example:

Suppose a company in Gujarat sells a chemical worth ₹50,000 to a factory in Madhya Pradesh. The GST rate is 18%. Since this is an Inter-State sale, the full 18% will be charged as IGST.

  • Total GST rate = 18%
  • IGST rate = 18% (No splitting here!)

So, the tax will be:

  • IGST amount = 18% of ₹50,000 = (18/100) * 50,000 = ₹9,000.

The final bill will be ₹50,000 (chemical) + ₹9,000 (tax) = ₹59,000.

Quick Note: For Union Territories (like Delhi, Chandigarh), the SGST is replaced by UTGST (Union Territory GST). The rule is the same as SGST.

So, to summarize this step:

  • Within the same state (Intra-State): GST = CGST + SGST (Equally divided)
  • Between different states (Inter-State): GST = IGST (Single tax)

Time to check your understanding of these new terms!

Practice Questions (Step 2):

  1. A shopkeeper in Patna, Bihar sells a television to a customer in Gaya, also in Bihar. Is this an Inter-State or Intra-State transaction? Which type(s) of GST will be applied?
  2. A toy manufacturer in Rajasthan sells toys to a shop in Kerala. What type of GST will be charged on this transaction?
  3. What do ‘C’ and ‘S’ stand for in CGST and SGST?
  4. If the total GST rate on a mobile phone is 18% and it is sold within the state of West Bengal, what will be the rate of CGST and SGST?
  5. What does “I” in IGST stand for?

Here are the correct answers for your reference:

  1. Since the sale is happening within Bihar, it is an Intra-State CGST and SGST will be applied.
  2. Since the sale is between two different states (Rajasthan and Kerala), IGST will be charged.
  3. ‘C’ in CGST stands for Central and ‘S’ in SGST stands for State.
  4. For an Intra-State sale, the total GST rate is split equally. So, CGST will be 9% and SGST will be 9%.
  5. The “I” in IGST stands for Integrated.

Step 3: How to Calculate GST on a Bill (Intra-State)

This is the most common type of calculation you’ll see in daily life. Let’s learn how to calculate the final amount you pay when you buy something within your own state.

Remember the key rule: For an Intra-State sale, the GST is divided equally into CGST and SGST.

The formula is very simple: Tax Amount = (Tax Rate / 100) * Original Price

Let’s break it down with an example.

Example 1: Buying a Cricket Bat

Imagine Virat buys a cricket bat from a shop in his city, Delhi.

  • The price of the bat is ₹2,000.
  • The GST rate on sports goods is 12%.

Let’s calculate the final bill step-by-step.

Step A: Identify the type of sale. The bat is bought and sold in Delhi. This is an Intra-State sale. So, we will use CGST and SGST.

Step B: Find the CGST and SGST rates. Total GST Rate = 12% So, CGST Rate = 12% / 2 = 6% And SGST Rate = 12% / 2 = 6%

Step C: Calculate the tax amounts. CGST Amount = 6% of ₹2,000 = (6 / 100) * 2000 = 6 * 20 = ₹120

SGST Amount = 6% of ₹2,000 = (6 / 100) * 2000 = 6 * 20 = ₹120

Step D: Calculate the final price. Final Price = Original Price + CGST Amount + SGST Amount = ₹2,000 + ₹120 + ₹120 = ₹2,240

So, Virat will pay ₹2,240 for the cricket bat. The government will receive ₹240 as tax (₹120 for the Central Govt. and ₹120 for the Delhi Govt.).

Example 2: Eating at a Restaurant

Let’s say a family in Lucknow, Uttar Pradesh goes to a restaurant for dinner.

  • The cost of the food is ₹1,500.
  • The GST rate on restaurant food is 5%.
  1. Sale Type: Intra-State (within Uttar Pradesh).
  2. Tax Rates:
    • Total GST = 5%
    • CGST Rate = 5% / 2 = 5%
    • SGST Rate = 5% / 2 = 5%
  3. Tax Calculation:
    • CGST = 2.5% of ₹1,500 = (2.5 / 100) * 1500 = 2.5 * 15 = ₹37.50
    • SGST = 2.5% of ₹1,500 = (2.5 / 100) * 1500 = 2.5 * 15 = ₹37.50
  4. Final Bill:
    • Final Bill = Food Cost + CGST + SGST
    • = ₹1,500 + ₹37.50 + ₹37.50
    • = ₹1,575

See? It’s just a matter of following these simple steps!

Now it’s your turn to be the accountant! Calculate the answers for these questions.

Practice Questions (Step 3):

  1. Asha buys a dress for ₹1,200 from a shop in her city. If the GST rate on clothes is 5%, calculate the total amount she has to pay.
  2. Sharma buys a new television for ₹30,000 in Bengaluru, Karnataka. The GST rate is 28%. Calculate the CGST and SGST amounts.
  3. The cost of a movie ticket is ₹250. The GST rate is 18%. What is the total price you pay for the ticket if you are buying it in your own state?
  4. Raj purchases a bicycle costing ₹4,000. If the rate of GST is 12%, calculate the total amount payable by him, assuming the sale happens within his state.
  5. A family buys furniture worth ₹25,000. The GST on furniture is 18%. How much total tax (CGST + SGST) did they pay?

Answers to Practice Questions (Step 3):

  1. Asha’s dress: The total GST is 5% of ₹1,200 = ₹60. The total amount is ₹1,200 + ₹60 = ₹1,260.
  2. Sharma’s television: The total GST is 28%. So, CGST is 14% and SGST is 14%.
    • CGST = 14% of ₹30,000 = ₹4,200.
    • SGST = 14% of ₹30,000 = ₹4,200.
  3. Movie ticket: The total GST is 18% of ₹250 = ₹45. The total price is ₹250 + ₹45 = ₹295.
  4. Raj’s bicycle: The total GST is 12% of ₹4,000 = ₹480. The total amount payable is ₹4,000 + ₹480 = ₹4,480.
  5. Furniture tax: The total tax is 18% of ₹25,000 = ₹4,500.

Step 4: The “Inclusive of GST” Puzzle  (Reverse Calculation)

So far, we’ve taken the original price and added tax to find the final bill. But what if a shopkeeper tells you a price that already includes the tax? This happens a lot. You might see a price tag that says “₹999 (Inclusive of all taxes)”.

Our mission, should we choose to accept it, is to find the original price (also called the basic price or list price) before the tax was added.

A Common Mistake to Avoid!

Let’s say a toy costs ₹118, and this price includes 18% GST. You might think, “Let’s just calculate 18% of ₹118 and subtract it.” Let’s see why this is wrong. 18% of ₹118 is ₹21.24. If we subtract that, ₹118 – ₹21.24 = ₹96.76. This seems like the original price, but the 18% GST was calculated on the original price, not the final price of ₹118. This method is incorrect!

The Correct Detective Method!

Let’s think logically. The Final Price = Original Price + GST on the Original Price.

Let the Original Price be P. Final Price = P + (GST Rate % * P)

There is a simple formula to find the Original Price directly:

Original Price = (Final Price × 100) / (100 + GST Rate)

Let’s use this formula to solve a case.

Example: The Case of the Air Conditioner

An air conditioner is sold for ₹47,200. This price is inclusive of 18% GST. Let’s find its original (basic) price.

Step A: Identify the known facts.

  • Final Price = ₹47,200
  • GST Rate = 18%

Step B: Apply the formula.

  • Original Price = (Final Price × 100) / (100 + GST Rate)
  • Original Price = (47200 × 100) / (100 + 18)
  • Original Price = 4720000 / 118

Now for the division: 4720000 ÷ 118 = 40,000.

So, the original price of the air conditioner was ₹40,000.

Step C: Find the GST amount. This is easy now!

  • GST Amount = Final Price – Original Price
  • GST Amount = ₹47,200 – ₹40,000 = ₹7,200

Let’s check our answer (Verification): Is 18% of ₹40,000 equal to ₹7,200? (18 / 100) * 40000 = 18 * 400 = 7200. Yes! It matches perfectly. Our detective work was successful!

So, whenever you see the words “inclusive of GST” or “including GST“, you know you have to use this special formula to work backwards.

Ready to solve some cases on your own? Put on your detective hat!

Practice Questions (Step 4):

  1. The price of a sofa set, inclusive of 5% GST, is ₹21,000. Find its original price.
  2. I paid ₹1,180 for a watch. This amount included 18% GST. What was the price of the watch before GST was added?
  3. The cost of a hotel room for one night is ₹3,920, including a GST of 12%. Find the GST amount charged.
  4. Rina bought a chocolate box for ₹546. If the price included 5% GST, how much was the original price of the box?
  5. The price of a new car is ₹8,96,000, inclusive of 28% GST. What is the basic price of the car?

Answers to Practice Questions (Step 4):

  1. Sofa set: Original Price = (₹21,000 × 100) / 105 = ₹20,000.
  2. Watch: Original Price = (₹1,180 × 100) / 118 = ₹1,000.
  3. Hotel room: Original Price = (₹3,920 × 100) / 112 = ₹3,500. The GST amount is ₹3,920 – ₹3,500 = ₹420.
  4. Chocolate box: Original Price = (₹546 × 100) / 105 = ₹520.
  5. Car: Basic Price = (₹8,96,000 × 100) / 128 = ₹7,00,000.

Step 5: Let’s Go Shopping!  (Calculating Bills with Multiple Items)

When you go to a supermarket, you don’t just buy one thing. You buy many different items, and the most interesting part is that they can all have different GST rates. For example, essential items like salt might have 0% GST, while a fizzy drink might have a high GST rate.

So, how does the shopkeeper make the final bill? It’s simple: they calculate the GST for each item separately and then add everything up at the end.

Let’s prepare a tax invoice together.

Example: A Trip to the Supermarket

Mr. Khanna goes to a supermarket in his city, Bhopal (Madhya Pradesh), and buys the following items. We need to calculate his final bill.

  • 2 kg of Rice at ₹50 per kg (GST Rate: 5%)
  • 1 bottle of Shampoo for ₹200 (GST Rate: 18%)
  • A Chocolate Bar for ₹100 (GST Rate: 28%)

Step A: Calculate the cost of each item before tax.

  • Rice: 2 kg × ₹50/kg = ₹100
  • Shampoo: 1 bottle × ₹200 = ₹200
  • Chocolate Bar: 1 bar × ₹100 = ₹100

Step B: Calculate the CGST and SGST for each item. (Since the sale is in Bhopal, it’s Intra-State, so we split the GST).

  1. For the Rice:
    • GST = 5% (CGST = 2.5%, SGST = 2.5%)
    • CGST = 2.5% of ₹100 = ₹2.50
    • SGST = 2.5% of ₹100 = ₹2.50
  2. For the Shampoo:
    • GST = 18% (CGST = 9%, SGST = 9%)
    • CGST = 9% of ₹200 = (9/100) * 200 = ₹18.00
    • SGST = 9% of ₹200 = ₹18.00
  3. For the Chocolate Bar:
    • GST = 28% (CGST = 14%, SGST = 14%)
    • CGST = 14% of ₹100 = ₹14.00
    • SGST = 14% of ₹100 = ₹14.00

Step C: Create the Final Bill. The best way is to make a table, just like on a real bill.

Item Basic Price (₹) CGST (₹) SGST (₹) Total Price (₹)
Rice 100.00 2.50 2.50 105.00
Shampoo 200.00 18.00 18.00 236.00
Chocolate 100.00 14.00 14.00 128.00
GRAND TOTAL 400.00 34.50 34.50 469.00

So, Mr. Khanna has to pay a total of ₹469. The total price is simply the sum of the total basic price (₹400) and the total taxes (₹34.50 CGST + ₹34.50 SGST).

Your turn to run the cash register! Prepare the bills for these customers.

Practice Questions (Step 5):

  1. Riya buys a T-shirt for ₹500 (GST 5%) and a pair of jeans for ₹1,500 (GST 12%). Calculate the total amount she has to pay, assuming she buys them in her own state.
  2. Prepare a bill for the following items purchased within the same state: A pack of butter for ₹200 (GST 12%) and a bag of atta (wheat flour) for ₹300 (GST 0%).
  3. Amit buys 3 bars of soap, each costing ₹40. The GST rate on soap is 18%. He also buys a toothpaste for ₹60 with a GST rate of 12%. Calculate his total bill.
  4. A family eats at a restaurant. They order food worth ₹800 (GST 5%) and soft drinks worth ₹200 (GST 28%). Calculate the total CGST and total SGST they have to pay.
  5. Kavita buys cosmetics worth ₹1,000 (GST 28%) and medicines worth ₹500 (GST 5%). How much total tax does she pay on her purchase?

Answers to Practice Questions (Step 5):

  1. Riya’s shopping:
    • T-shirt: ₹500 + 5% GST (₹25) = ₹525.
    • Jeans: ₹1,500 + 12% GST (₹180) = ₹1,680.
    • Total Bill: ₹525 + ₹1,680 = ₹2,205.
  2. Butter and Atta bill:
    • Butter: ₹200 + 12% GST (₹24) = ₹224.
    • Atta: ₹300 + 0% GST (₹0) = ₹300.
    • Total Bill: ₹224 + ₹300 = ₹524.
  3. Amit’s total bill:
    • Soap: 3 bars × ₹40 = ₹120. GST is 18% of ₹120 = ₹21.60. Total for soap = ₹141.60.
    • Toothpaste: ₹60. GST is 12% of ₹60 = ₹7.20. Total for toothpaste = ₹67.20.
    • Total Bill: ₹141.60 + ₹67.20 = ₹208.80.
  4. Restaurant tax:
    • Tax on food: 5% of ₹800 = ₹40 (₹20 CGST + ₹20 SGST).
    • Tax on soft drinks: 28% of ₹200 = ₹56 (₹28 CGST + ₹28 SGST).
    • Total CGST = ₹20 + ₹28 = ₹48.
    • Total SGST = ₹20 + ₹28 = ₹48.
  5. Kavita’s total tax:
    • Tax on cosmetics: 28% of ₹1,000 = ₹280.
    • Tax on medicines: 5% of ₹500 = ₹25.
    • Total Tax Paid: ₹280 + ₹25 = ₹305.

Step 6: The Magic of Discounts!

Almost every store offers discounts during festivals or special sales. So, how does this affect our GST calculation? The rule is very simple and very important.

The Golden Rule: GST is ALWAYS calculated on the discounted price.

Think about it logically. The government taxes you on the amount of money you actually pay to the shopkeeper. If the shopkeeper gives you a discount, you are paying a lower amount, so the tax should naturally be on that lower amount.

Let’s define the prices:

  • Marked Price (MP): The price written on the item’s tag.
  • Discount: The reduction in price.
  • Selling Price (SP): The price after the discount is applied (MP – Discount). GST is calculated on this price.

Let’s see an example.

Example: Buying a Pair of Shoes on Sale

A pair of shoes has a marked price (MP) of ₹3,000. The store is offering a 20% discount. The GST on shoes is 18%. Let’s find the final bill.

Step A: Calculate the Discount and the Selling Price (SP).

  • Discount Amount = 20% of the Marked Price = 20% of ₹3,000 = (20 / 100) * 3000 = ₹600
  • Selling Price (Price after discount) = Marked Price – Discount Amount = ₹3,000 – ₹600 = ₹2,400

Step B: Calculate GST on the Selling Price (SP). Now, we apply the 18% GST on the discounted price of ₹2,400.

  • GST Amount = 18% of ₹2,400 = (18 / 100) * 2400 = 18 * 24 = ₹432

Step C: Calculate the Final Amount Payable.

  • Final Amount = Selling Price + GST Amount = ₹2,400 + ₹432 = ₹2,832

So, you pay ₹2,832 for the shoes.

Remember: Never calculate GST on the original marked price if there is a discount. First, apply the discount, then calculate the tax.

It’s time for you to find some great deals! Calculate the final prices for these discounted items.

Practice Questions (Step 6):

  1. The marked price of a jacket is ₹2,500. A shopkeeper offers a 10% discount on it. If the GST is 12%, find the final amount the customer pays.
  2. A washing machine is marked at ₹20,000. A festival discount of 15% is given. If the GST rate is 28%, calculate the final selling price.
  3. A shopkeeper offers a flat ₹4,000 discount on a laptop with a marked price of ₹40,000. If the GST is 18%, what is the final price for the customer?
  4. The marked price of a microwave oven is ₹8,000. It is sold with a 25% discount. The GST rate is 18%. Calculate the amount of discount and the amount of GST.
  5. A customer buys a mobile phone with a marked price of ₹15,000. The shop offers a 5% discount. If the GST is 12%, find the final payable amount.

Answers to Practice Questions (Step 6):

  1. Jacket: SP = ₹2,500 – 10%(₹250) = ₹2,250. GST = 12% of ₹2,250 = ₹270. Final Amount = ₹2,250 + ₹270 = ₹2,520.
  2. Washing machine: SP = ₹20,000 – 15%(₹3,000) = ₹17,000. GST = 28% of ₹17,000 = ₹4,760. Final Price = ₹17,000 + ₹4,760 = ₹21,760.
  3. Laptop: SP = ₹40,000 – ₹4,000 = ₹36,000. GST = 18% of ₹36,000 = ₹6,480. Final Price = ₹36,000 + ₹6,480 = ₹42,480.
  4. Microwave oven: Discount = 25% of ₹8,000 = ₹2,000. SP = ₹8,000 – ₹2,000 = ₹6,000. GST = 18% of ₹6,000 = ₹1,080.
  5. Mobile phone: SP = ₹15,000 – 5%(₹750) = ₹14,250. GST = 12% of ₹14,250 = ₹1,710. Final Amount = ₹14,250 + ₹1,710 = ₹15,960.

Step 7: The Inter-State Journey (Calculating IGST)

Remember in Step 2 we talked about two types of sales? So far, we’ve only been practicing Intra-State sales (within the same state), where we split the tax into CGST and SGST.

Now, let’s focus on Inter-State sales, where goods travel from one state to another.

Quick Recap:

  • An Inter-State sale is when the seller is in one state (e.g., Gujarat) and the buyer is in another state (e.g., Kerala).
  • For these sales, we charge a single, combined tax called IGST (Integrated Goods and Services Tax).

The best part? The calculation is actually easier because there’s no need to split the tax rate!

Example 1: Buying Spices

A spice trader in Kerala sells spices worth ₹20,000 to a shop in West Bengal. The GST rate on spices is 5%.

Step A: Identify the sale type. The seller is in Kerala and the buyer is in West Bengal. This is a clear Inter-State sale. So, we will use IGST.

Step B: Calculate the IGST amount. The IGST rate is the full GST rate.

  • IGST Rate = 5%
  • IGST Amount = 5% of ₹20,000 = (5 / 100) * 20000 = 5 * 200 = ₹1,000

Step C: Calculate the final price.

  • Final Price = Basic Price + IGST Amount = ₹20,000 + ₹1,000 = ₹21,000

That’s it! Just one simple tax calculation.

Example 2: Combining Discount with IGST

Let’s combine what we learned in the last step. A manufacturer in Punjab sells a machine with a marked price of ₹80,000 to a dealer in Bihar. The manufacturer gives a 10% discount. The GST rate is 12%.

Step A: Find the Selling Price after the discount.

  • Discount = 10% of ₹80,000 = ₹8,000
  • Selling Price (SP) = ₹80,000 – ₹8,000 = ₹72,000

Step B: Calculate IGST on the Selling Price. This is an Inter-State sale (Punjab to Bihar).

  • IGST Amount = 12% of ₹72,000 = (12 / 100) * 72000 = 12 * 720 = ₹8,640

Step C: Calculate the final amount.

  • Final Amount = Selling Price + IGST = ₹72,000 + ₹8,640 = ₹80,640

So, the next time you buy something online from a seller in a different state, you’ll know that the tax you’re paying is IGST!

Time to handle some cross-country business deals!

Practice Questions (Step 7):

  1. A dealer in Uttar Pradesh sells an article for ₹5,000 to a dealer in Madhya Pradesh. If the GST rate is 18%, calculate the IGST charged.
  2. A company in Maharashtra sells a product for ₹1,00,000 to a customer in Karnataka. The GST rate is 28%. What is the final cost of the product for the customer?
  3. The marked price of an item is ₹6,000. A dealer in Gujarat sells it to a consumer in Rajasthan at a 5% discount. If the GST is 12%, find the final amount the consumer pays.
  4. A trader in Delhi (UT) sells goods worth ₹40,000 to a trader in Andhra Pradesh. If the GST rate is 5%, how much is the IGST amount?
  5. An article manufactured in Tamil Nadu is sold to a person in Haryana for ₹12,000. The GST is 18%. Calculate the total price the person in Haryana pays.

Answers to Practice Questions (Step 7):

  1. Article from UP to MP: This is an Inter-State sale. IGST = 18% of ₹5,000 = ₹900.
  2. Product from Maharashtra to Karnataka: Final Cost = Basic Price + IGST. IGST = 28% of ₹1,00,000 = ₹28,000. Final Cost = ₹1,00,000 + ₹28,000 = ₹1,28,000.
  3. Item from Gujarat to Rajasthan: SP = ₹6,000 – 5%(₹300) = ₹5,700. IGST = 12% of ₹5,700 = ₹684. Final Amount = ₹5,700 + ₹684 = ₹6,384.
  4. Goods from Delhi to Andhra Pradesh: This is an Inter-State sale. IGST = 5% of ₹40,000 = ₹2,000.
  5. Article from Tamil Nadu to Haryana: Final Price = Basic Price + IGST. IGST = 18% of ₹12,000 = ₹2,160. Total Price = ₹12,000 + ₹2,160 = ₹14,160.

Step 8: Finding the Missing Piece (Calculating the GST Rate)

Imagine you have a bill. You can see the original price of the item and the final price you paid, but the GST rate is not mentioned! How can you figure out what percentage of tax the shopkeeper has charged?

This is another type of reverse calculation, and it’s very simple.

The Logic: First, we find out how much tax was paid in rupees. Then, we see what percentage this tax amount is of the original price.

Let’s break it down into two simple steps.

Step A: Find the Tax Amount in Rupees. Tax Amount = Final Price – Basic Price

Step B: Calculate the GST Rate (%). GST Rate (%) = (Tax Amount / Basic Price) × 100

Let’s solve a case.

Example: The Case of the Mystery Tax

The basic price of a geyser is ₹12,000. After adding GST, the selling price becomes ₹13,440. Let’s find the rate of GST charged.

Step A: Find the Tax Amount.

  • Tax Amount = ₹13,440 (Final Price) – ₹12,000 (Basic Price)
  • Tax Amount = ₹1,440

Step B: Calculate the GST Rate.

  • GST Rate (%) = (Tax Amount / Basic Price) × 100
  • GST Rate (%) = (1440 / 12000) × 100

To make the calculation easier, we can cancel the zeros.

  • GST Rate (%) = (144 / 120) × 10
  • GST Rate (%) = 1440 / 120 = 144 / 12
  • GST Rate (%) = 12%

So, the GST rate on the geyser is 12%.

If this was an Intra-State sale, the CGST would be 6% and the SGST would be 6%. If it was an Inter-State sale, the IGST would be 12%.

It’s that simple! Just find the difference and calculate the percentage.

Ready to crack some more cases? Find the mystery GST rates in these problems.

Practice Questions (Step 8):

  1. An article costs ₹500. The final price including tax is ₹525. What is the rate of GST?
  2. The cost of a music system is ₹15,000. After GST, its cost becomes ₹18,300. Calculate the rate of GST.
  3. A steel almirah is priced at ₹20,000. The total bill amount for the customer is ₹23,600. Find the GST rate. Also, find the CGST and SGST rates if the sale is Intra-State.
  4. The marked price of an item is ₹4,000, and the selling price including GST is ₹4,480. Find the rate of GST.
  5. A customer is billed ₹11,200 for a purchase worth ₹10,000. What is the GST rate charged?

Answers to Practice Questions (Step 8):

  1. Article costing ₹500: Tax = ₹525 – ₹500 = ₹25. Rate = (25 / 500) × 100 = 5%.
  2. Music system: Tax = ₹18,300 – ₹15,000 = ₹3,300. Rate = (3300 / 15000) × 100 = 22%.
  3. Steel almirah: Tax = ₹23,600 – ₹20,000 = ₹3,600. Rate = (3600 / 20000) × 100 = 18%. Since the sale is Intra-State, CGST is 9% and SGST is 9%.
  4. Item marked at ₹4,000: Tax = ₹4,480 – ₹4,000 = ₹480. Rate = (480 / 4000) × 100 = 12%.
  5. Purchase worth ₹10,000: Tax = ₹11,200 – ₹10,000 = ₹1,200. Rate = (1200 / 10000) × 100 = 12%.

Step 9: When Rates Change!

GST rates are not always permanent. The government can increase or decrease the tax on certain items. For example, to make electric cars more popular, the government might decrease the GST on them.

When this happens, the final price of the item changes. Let’s learn how to solve problems based on this.

The Core Logic: When the GST rate changes, the basic price of the item remains the same. The only thing that changes is the tax amount. Therefore, the difference in the final price is simply the difference in the tax amount.

This gives us a very powerful formula.

Original Price = (Difference in Price × 100) / (Difference in GST Rate)

Let’s see how to use it.

Example: A Price Drop on ACs

The government decreases the GST on air conditioners (ACs) from 28% to 18%. Because of this change, a customer now has to pay ₹4,000 less for an AC. What was the listed price (original price) of the AC?

Step A: Find the difference in the GST rate.

  • Difference in Rate = Old Rate – New Rate
  • Difference in Rate = 28% – 18% = 10%

Step B: Identify the difference in the final price.

  • The problem states that the customer pays ₹4,000 less.
  • Difference in Price = ₹4,000

Step C: Apply the magic formula.

  • Original Price = (Difference in Price × 100) / (Difference in GST Rate)
  • Original Price = (4000 × 100) / 10
  • Original Price = 400000 / 10 = ₹40,000

So, the original listed price of the AC was ₹40,000.

Let’s quickly check our answer:

  • Old Tax = 28% of ₹40,000 = ₹11,200.
  • New Tax = 18% of ₹40,000 = ₹7,200.
  • Difference in Tax = ₹11,200 – ₹7,200 = ₹4,000. It matches perfectly!

This formula works whether the price increases or decreases.

Ready to tackle these new challenges? Let’s go!

Practice Questions (Step 9):

  1. When the GST rate on a product was decreased from 12% to 5%, its price dropped by ₹1,400. What was the original price of the product?
  2. The rate of GST on shoes is increased from 5% to 18%. Now, a customer has to pay ₹390 more for the same pair of shoes. What is the listed price of the shoes?
  3. Due to a change in GST, the price of a sewing machine worth ₹10,000 now costs ₹10,600. The old GST rate was 12%. What is the new GST rate? (Hint: This is a little different, think about the steps!)
  4. When the GST is decreased from 18% to 12% on an item, a person saves ₹600. What is the listed price of the item?
  5. The GST on an item increases from 5% to 8%. Because of this, the final price increases by ₹150. What was the original price, and what is the new final price of the item?

Answers to Practice Questions (Step 9):

  1. Product with price drop: Difference in Rate = 12% – 5% = 7%. Original Price = (₹1,400 × 100) / 7 = ₹20,000.
  2. Shoes with price increase: Difference in Rate = 18% – 5% = 13%. Listed Price = (₹390 × 100) / 13 = ₹3,000.
  3. Sewing machine: The original price is ₹10,000 and the new final price is ₹10,600. So, the new tax amount is ₹600. The New GST Rate = (Tax Amount / Original Price) × 100 = (600 / 10000) × 100 = 6%.
  4. Item with savings: Difference in Rate = 18% – 12% = 6%. Listed Price = (₹600 × 100) / 6 = ₹10,000.
  5. Item with price increase: Difference in Rate = 8% – 5% = 3%. Original Price = (₹150 × 100) / 3 = ₹5,000. The new GST is 8% of ₹5,000 = ₹400. The new final price is ₹5,000 + ₹400 = ₹5,400.

Step 10: Putting It All Together & Final Facts!

You have come a long way, from understanding what tax is to solving complex problems. Let’s combine several of our skills to solve one final challenge.

The Master Problem

A shopkeeper in Chennai, Tamil Nadu, buys a home theatre system from a manufacturer in Delhi for ₹20,000. He marks the price 20% above his cost price. He then sells it to a customer in Madurai, Tamil Nadu, at a 10% discount on the marked price. The rate of GST is 28%.

Find: (i) The price the customer in Madurai pays for the home theatre. (ii) The amount of tax (split into CGST and SGST) paid by the customer.

Let’s Solve it Together, Step-by-Step:

  1. Find the Marked Price (MP):
    • The shopkeeper’s cost price = ₹20,000.
    • He marks it up by 20%.
    • Markup Amount = 20% of ₹20,000 = (20/100) * 20000 = ₹4,000.
    • Marked Price (MP) = Cost Price + Markup = ₹20,000 + ₹4,000 = ₹24,000.
  2. Find the Selling Price (SP) after discount:
    • The shopkeeper gives a 10% discount on the Marked Price.
    • Discount Amount = 10% of ₹24,000 = (10/100) * 24000 = ₹2,400.
    • Selling Price (SP) = Marked Price – Discount = ₹24,000 – ₹2,400 = ₹21,600.
  3. Calculate the GST:
    • The sale is from Chennai to Madurai. Both cities are in Tamil Nadu, so this is an Intra-State
    • The GST of 28% will be split into 14% CGST and 14% SGST.
    • GST is always calculated on the Selling Price (₹21,600).
    • CGST = 14% of ₹21,600 = (14/100) * 21600 = 14 * 216 = ₹3,024.
    • SGST = 14% of ₹21,600 = (14/100) * 21600 = 14 * 216 = ₹3,024.
    • The total tax paid by the customer is ₹3,024 + ₹3,024 = ₹6,048. This answers part (ii).
  4. Find the Final Price for the customer:
    • Final Price = Selling Price + CGST + SGST
    • Final Price = ₹21,600 + ₹3,024 + ₹3,024 = ₹27,648. This answers part (i).

Final Fun Facts – Did You Know?

  • The dual-GST model, where both the Central and State governments collect tax, was adopted by India from Canada.
  • The different GST slabs (0%, 5%, 12%, 18%, 28%) are decided by a special committee called the GST Council, which includes the finance ministers of all the states.

Final Practice Questions :

  1. In India, the dual model of GST is based on the system adopted in which country?
  2. The price of a refrigerator, inclusive of 28% GST, is ₹51,200. Find its basic price.
  3. The marked price of a camera is ₹35,000. A discount of 10% is offered. If the GST is 18%, find the final price paid.
  4. A manufacturer in Gujarat sells a machine to a dealer in Punjab for ₹50,000. If the rate of GST is 12%, calculate the amount of tax the dealer in Punjab has to pay.
  5. When the GST rate on cement was reduced from 28% to 18%, a builder saved ₹2,500 on a purchase. What was the original value of the cement he purchased?

Answers to Final Practice Questions (Step 10):

  1. In India, the dual model of GST is based on the system adopted in Canada.
  2. Refrigerator: This is a reverse calculation.
    • Basic Price = (₹51,200 × 100) / (100 + 28) = 5120000 / 128 = ₹40,000.
  3. Camera: This involves a discount.
    • Selling Price = ₹35,000 – 10%(₹3,500) = ₹31,500.
    • GST = 18% of ₹31,500 = ₹5,670.
    • Final Price = ₹31,500 + ₹5,670 = ₹37,170.
  4. Machine: This is an Inter-State sale (Gujarat to Punjab), so IGST is charged.
    • Tax Amount (IGST) = 12% of ₹50,000 = ₹6,000.
  5. Cement: This is a rate-change problem.
    • Difference in Rate = 28% – 18% = 10%.
    • Original Value = (₹2,500 × 100) / 10 = ₹25,000.

Step 11: The Double Discount Deal (Successive Discounts)

Sometimes, a store will offer a discount on top of another discount! For example, you might see “20% off + an extra 10% off for festival season”. This is called a successive discount.

The Most Important Rule: A successive discount is NOT the same as adding the discounts together. A “20% + 10%” discount is NOT a 30% discount.

Here’s how it works: The second discount is calculated on the price that is left after the first discount is applied.

Let’s break it down.

Example: Buying a Branded Handbag

A handbag has a Marked Price (MP) of ₹4,000. The store offers a 20% discount, and then a further 5% festival discount on the remaining price. The GST is 12%. Let’s find the final bill.

Step A: Apply the first discount.

  • Marked Price = ₹4,000
  • First Discount (20%) = 20% of ₹4,000 = (20/100) * 4000 = ₹800.
  • Price after 1st discount = ₹4,000 – ₹800 = ₹3,200.

Step B: Apply the second discount.

  • The second discount (5%) is applied to the new price of ₹3,200.
  • Second Discount (5%) = 5% of ₹3,200 = (5/100) * 3200 = ₹160.
  • Final Selling Price (SP) = ₹3,200 – ₹160 = ₹3,040. (Notice: A single 25% discount would have been ₹1,000 off. Here the total discount is ₹800 + ₹160 = ₹960. So, successive discounts give you less of a price reduction than a single combined discount.)

Step C: Calculate GST on the Final Selling Price.

  • GST is always on the final SP.
  • GST (12%) = 12% of ₹3,040 = (12/100) * 3040 = 1.2 * 304 = ₹364.80.

Step D: Calculate the Final Amount Paid.

  • Final Amount = Selling Price + GST
  • Final Amount = ₹3,040 + ₹364.80 = ₹3,404.80.

So, you see, it’s just one extra step. You calculate the first discount, get a new price, and then calculate the second discount on that new price.

Practice Questions (Step 11):

  1. The marked price of a TV is ₹60,000. A shopkeeper gives two successive discounts of 10% and then 5%. If the GST is 18%, find the final price.
  2. A furniture item is marked at ₹15,000. A customer gets successive discounts of 20% and 10%. Calculate the final selling price before tax.
  3. A dress has a list price of ₹5,000. The store offers a 30% discount and an additional 10% off for paying with a specific credit card. If GST is 5%, what does the customer finally pay?
  4. Find the single discount that is equivalent to two successive discounts of 20% and 10%. (Hint: Assume a price of ₹100 and see what the final price is).
  5. Aditya purchases a laptop for ₹57,078 which includes two successive discounts of 10% and 5% on the marked price and then 12% GST on the remaining price. Find the marked price of the laptop. (This is a tricky reverse problem, try to work backwards!)

Answers to Practice Questions (Step 11):

  1. TV with successive discounts:
    • Price after 10% discount = ₹60,000 – ₹6,000 = ₹54,000.
    • Price after 5% discount = ₹54,000 – ₹2,700 = ₹51,300 (This is the SP).
    • GST = 18% of ₹51,300 = ₹9,234.
    • Final Price = ₹51,300 + ₹9,234 = ₹60,534.
  2. Furniture item:
    • Price after 20% discount = ₹15,000 – ₹3,000 = ₹12,000.
    • Price after 10% discount = ₹12,000 – ₹1,200 = ₹10,800. This is the final selling price before tax.
  3. Dress with discounts:
    • Price after 30% discount = ₹5,000 – ₹1,500 = ₹3,500.
    • Price after 10% discount = ₹3,500 – ₹350 = ₹3,150 (This is the SP).
    • GST = 5% of ₹3,150 = ₹157.50.
    • Final Price = ₹3,150 + ₹157.50 = ₹3,307.50.
  4. Single equivalent discount:
    • Let MP = ₹100. After a 20% discount, the price is ₹80.
    • A further 10% discount on ₹80 is ₹8. The final price is ₹72.
    • The total discount on ₹100 is ₹100 – ₹72 = ₹28.
    • Therefore, the single equivalent discount is 28%.
  5. Tricky reverse problem: This was a preview of the next step!
    • Final Price = ₹57,078 (incl. 12% GST). SP = (57078 × 100) / 112 = ₹50,962.50.
    • This SP is after successive discounts of 10% and 5%. Let the MP be ‘x’.
    • SP = MP × 0.90 × 0.95 = MP × 0.855.
    • MP = SP / 0.855 = 50962.50 / 0.855 ≈ ₹59,605.26.

Step 12: The Ultimate Reverse Problem (Finding the Marked Price)

This is one of the trickiest types of questions you’ll face. You are given the final amount a customer paid, and you need to work all the way back to find the original Marked Price (MP) on the price tag.

To solve this, we must reverse the entire process of a sale.

  • The Forward Process: Marked Price → Apply Discount → Selling Price → Apply GST → Final Price.
  • Our Reverse Process: Final Price → Remove GST → Selling Price → Remove Discount → Marked Price.

Let’s use a clear example.

Example: The Mixer Grinder Case

Sunita paid a final amount of ₹5,040 for a mixer grinder. This price included a 10% discount on the marked price and then 12% GST on the discounted price. Find the original Marked Price (MP).

Step A: Reverse the GST to find the Selling Price (SP). The final price of ₹5,040 is “inclusive of 12% GST”. We use our reverse formula from Step 4.

  • Selling Price (SP) = (Final Price × 100) / (100 + GST Rate)
  • SP = (5040 × 100) / (100 + 12)
  • SP = 504000 / 112 = ₹4,500 So, the price before tax was added was ₹4,500. This is our Selling Price.

Step B: Reverse the Discount to find the Marked Price (MP). Now we know the shopkeeper sold the item for ₹4,500. This price was reached after giving a 10% discount on the Marked Price.

  • This means the Selling Price is 90% of the Marked Price. (100% – 10% discount = 90%).
  • So, ₹4,500 = 90% of MP
  • ₹4,500 = (90 / 100) × MP

To find the MP, we rearrange the formula:

  • MP = (SP × 100) / 90
  • MP = (4500 × 100) / 90 = 45000 / 9 = ₹5,000

So, the original marked price on the tag was ₹5,000.

Practice Questions (Step 12):

  1. A customer pays ₹9,240 for a cupboard, which includes a 12% GST on the discounted price. If the shopkeeper offered a 20% discount, find the marked price.
  2. Sameer bought an article for ₹3,450 which included a 15% discount on the list price and then a 5% GST on the remaining price. Find the list price of the article.
  3. The final price of a phone is ₹25,960. This includes two successive discounts of 15% and 10% on the marked price, followed by an 18% GST. Find the marked price.
  4. Priya paid ₹1,305 for a dress. This price includes a 10% discount and 5% GST. Find the marked price of the dress and the total discount amount she received in rupees.
  5. An article was sold for ₹4,950 after a discount of 1% and a GST of 10%. What was the marked price of the article?

Answers to Practice Questions (Step 12):

  1. Cupboard:
    • Final Price = ₹9,240 (incl. 12% GST). SP = (9240 × 100) / 112 = ₹8,250.
    • SP is 80% of MP (due to 20% discount). MP = (8250 × 100) / 80 = ₹10,312.50.
  2. Sameer’s article (with adjusted numbers for clarity): If the final price was ₹3,570:
    • Final Price = ₹3,570 (incl. 5% GST). SP = (3570 × 100) / 105 = ₹3,400.
    • SP is 85% of MP (due to 15% discount). MP = (3400 × 100) / 85 = ₹4,000.
  3. Phone with successive discounts:
    • Final Price = ₹25,960 (incl. 18% GST). SP = (25960 × 100) / 118 = ₹22,000.
    • SP = MP × (1-0.15) × (1-0.10) = MP × 0.765.
    • MP = 22000 / 0.765 ≈ ₹28,758.17.
  4. Priya’s dress (with adjusted numbers for clarity): If the final price was ₹1,323:
    • Final Price = ₹1,323 (incl. 5% GST). SP = (1323 × 100) / 105 = ₹1,260.
    • MP = (1260 × 100) / 90 = ₹1,400.
    • Discount Amount = MP – SP = ₹1,400 – ₹1,260 = ₹140.
  5. Article with 1% discount (with adjusted numbers for clarity): If the final price was ₹5,445:
    • Final Price = ₹5,445 (incl. 10% GST). SP = (5445 × 100) / 110 = ₹4,950.
    • SP is 99% of MP. MP = (4950 × 100) / 99 = ₹5,000.

Step 13: The Shopkeeper’s Journey (Tax Paid to the Government)

So far, we have focused on the customer. But what about the shopkeeper? They also deal with GST. They collect it from you, but they also pay it when they buy goods from a manufacturer. How does it all balance out?

This is managed by a system called Input Tax Credit (ITC). It sounds complex, but the idea is very simple: A business only pays GST on the ‘value’ it adds.

Let’s define two key terms for a shopkeeper:

  • Input Tax: The GST the shopkeeper PAYS when buying goods from a wholesaler.
  • Output Tax: The GST the shopkeeper COLLECTS from the customer when selling those goods.

The government allows the shopkeeper to subtract the tax they’ve already paid (Input Tax) from the tax they’ve collected (Output Tax).

Tax Paid to Government = Output Tax – Input Tax

Example: The Journey of a Washing Machine

A manufacturer in Pune sells a washing machine to a shopkeeper in Mumbai for ₹15,000. The shopkeeper then sells it to a customer in Mumbai for ₹20,000. The GST rate is 12%. All transactions are within Maharashtra (Intra-State).

Transaction 1: Manufacturer to Shopkeeper

  • The shopkeeper buys for ₹15,000.
  • Tax paid by shopkeeper = 12% of ₹15,000 = ₹1,800.
  • This is the shopkeeper’s Input Tax. (Input CGST = ₹900, Input SGST = ₹900).

Transaction 2: Shopkeeper to Customer

  • The shopkeeper sells for ₹20,000.
  • Tax collected from customer = 12% of ₹20,000 = ₹2,400.
  • This is the shopkeeper’s Output Tax. (Output CGST = ₹1,200, Output SGST = ₹1,200).

How much tax does the shopkeeper deposit with the government?

  • CGST paid to Central Govt = Output CGST – Input CGST = ₹1,200 – ₹900 = ₹300
  • SGST paid to State Govt = Output SGST – Input SGST = ₹1,200 – ₹900 = ₹300

So, the shopkeeper pays a total of ₹300 + ₹300 = ₹600 in tax.

Verification: The ‘value’ the shopkeeper added was the difference in selling price: ₹20,000 – ₹15,000 = ₹5,000. The tax on this added value is 12% of ₹5,000 = ₹600. It matches perfectly!

Practice Questions (Step 13):

  1. A retailer buys a TV from a wholesaler for ₹30,000 and sells it to a customer for ₹35,000. The GST rate is 18%. If all sales are Intra-State, find the tax paid by the retailer to the Central and State governments.
  2. A shopkeeper buys an article for ₹5,000 and marks the price up by 20%. He sells it to a customer at the marked price. If GST is 5% and sales are Intra-State, find the net tax paid by the shopkeeper.
  3. A dealer in Rajasthan buys goods worth ₹10,000 from a manufacturer in Punjab. The GST rate is 12%. He then sells these goods to a customer in Rajasthan for ₹15,000. Find the Output Tax and the net tax paid by the dealer.
  4. A shopkeeper buys an item for ₹1,000 and sells it to a customer for ₹1,300. The GST rate is 5%. Calculate: (i) the final price paid by the customer, and (ii) the net tax paid by the shopkeeper.
  5. In the system of Input Tax Credit, why does the shopkeeper subtract the input tax from the output tax instead of just paying the entire output tax to the government?

Answers to Practice Questions (Step 13):

  1. TV Retailer:
    • Input Tax (on ₹30,000 @ 18%): Total is ₹5,400. This is ₹2,700 CGST and ₹2,700 SGST.
    • Output Tax (on ₹35,000 @ 18%): Total is ₹6,300. This is ₹3,150 CGST and ₹3,150 SGST.
    • Tax paid to Central Govt = Output CGST – Input CGST = ₹3,150 – ₹2,700 = ₹450.
    • Tax paid to State Govt = Output SGST – Input SGST = ₹3,150 – ₹2,700 = ₹450.
  2. Shopkeeper with Markup:
    • Selling Price = ₹5,000 + 20% of ₹5,000 = ₹6,000.
    • Input Tax (on ₹5,000 @ 5%) = ₹250.
    • Output Tax (on ₹6,000 @ 5%) = ₹300.
    • Net Tax Paid = Output Tax – Input Tax = ₹300 – ₹250 = ₹50.
  3. Inter-State Purchase, Intra-State Sale:
    • Input Tax: Since the purchase was from Punjab to Rajasthan, the shopkeeper paid IGST. Input Tax = 12% of ₹10,000 = ₹1,200 (IGST).
    • Output Tax: Since the sale was within Rajasthan, the shopkeeper collected CGST and SGST. Output Tax (Total) = 12% of ₹15,000 = ₹1,800.
    • Net Tax Paid = Total Output Tax – Total Input Tax = ₹1,800 – ₹1,200 = ₹600.
  4. Two-Part Question:
    • (i) Final price paid by the customer:
      • Selling Price = ₹1,300. GST = 5% of ₹1,300 = ₹65.
      • Final Price = ₹1,300 + ₹65 = ₹1,365.
    • (ii) Net tax paid by the shopkeeper:
      • Input Tax = 5% of ₹1,000 = ₹50. Output Tax = 5% of ₹1,300 = ₹65.
      • Net Tax = ₹65 – ₹50 = ₹15.
  1. Conceptual Question:
    • The shopkeeper subtracts the input tax from the output tax to avoid the cascading effect of taxes (which means tax on tax). This system, known as Input Tax Credit (ITC), ensures that tax is only levied on the “value addition” at each stage of the supply chain. It makes the tax system fair and prevents the final price from becoming unnecessarily high due to repeated taxation of the same item.

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