GST Tax

What is GST Billing

 

GST, short for Goods and Services Tax, is a new tax that will be imposed on the sale and purchase of goods and services in India. GST is meant to replace all taxes in India with a single unified tax applied to value addition instead of the total value of the product at each stage in the supply chain.

This method provides credit for the input tax paid on the purchase of goods and services, which can be offset with the tax to be paid on the supply of goods and services. As a result, this reduces the overall manufacturing cost, with the end customer paying less.

What is the exemption limit in the GST


Businesses with turnover revenue of 40 lakhs and above will have to register and file for GST returns, with a threshold of 10 lakhs for businesses in the northeast and hill states.

Why is GST being introduced in India

One of the main reasons for GST being introduced in India is the tax burden that falls both on companies and consumers. With the current tax system, there are multiple taxes added at each stage of the supply chain, without taking credit for taxes paid at previous stages. As a result, the end cost of the product does not clearly show the actual cost of the product and how much tax was applied. This cascading structure is too complex and inefficient.

GST will integrate most taxes into a single one, that will be applied to the sale and purchase of goods and services, with deductions for taxes paid at previous supply chain stages. This structure is predicted to be easier to track both for the government and business owners.

To understand all about GST, let’s take an example:

 

A farmer sells milk to an ice cream manufacturer, who then processes the milk to make ice cream and sells it to several retail stores.

The farmer sells the milk at Rs.10. If the GST rate is 10%, then the added tax will be Rs.1, so the ice cream manufacturer will purchase milk for Rs.11 (10 + GST 10%).

After making the Ice Cream, he adds Rs. 10 as his margin, so his total sale price will be Rs.20 i.e. (Cost of Goods sold Rs.10 + his margin Rs.10). Here Cost of Goods Sold is taken as Rs.10 (Purchase price Rs.11 - Rs.1 of GST because the manufacturer will take input credit).

So, the manufacturer sells his ice cream to a retailer for Rs. 22 i.e. Rs.20 + 10% GST (Rs.2).

The retailer then adds a value of Rs. 10 to his Cost of Goods sold Rs.20, by following the same pattern as from Farmer to Icecream manufacturer (Purchase price Rs. 22 – Rs. 2 of GST because the retailer will take input credit).

So, the Retailer sells his ice cream to a customer for Rs. 33 i.e. Rs.30 + 10% GST

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