Goods and sales tax vat

Goods and Services Tax (GST) is a value-added tax (VAT) imposed on most goods and services sold for domestic consumption. It is a multi-stage tax where the tax is collected at each stage of the production and distribution process, with credit for the tax paid at previous stages available as a set-off against the tax payable on the value added at subsequent stages.

Example of GST Application

Scenario:

• A manufacturer produces a product costing ₹50,000.

• GST rate = 18%

Step 1: Manufacturer to Wholesaler

• Selling price = ₹50,000

• GST = ₹50,000 × 18% = ₹9,000

• Wholesaler pays ₹59,000 to the manufacturer.

Step 2: Wholesaler to Retailer

• Value added by wholesaler = ₹10,000

• GST on wholesaler’s value addition = ₹10,000 × 18% = ₹1,800

• Wholesaler claims ITC of ₹9,000 paid to manufacturer.

• Wholesaler remits GST = ₹1,800 – ₹9,000 (credit) = ₹0 (only value-added tax is paid).

Step 3: Retailer to Consumer

• Value added by retailer = ₹5,000

• GST on retailer’s value addition = ₹5,000 × 18% = ₹900

• Retailer claims ITC on ₹1,800 paid to wholesaler.

• GST remitted = ₹900 – ₹1,800 (credit) = negative/adjusted in compliance system.

End Result:

• Consumer pays total GST of ₹9,000 + 1,800 + 900 = ₹11,700, correctly reflecting tax only on value added at each stage.