How to Calculate GST?

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How to Calculate GST?

With the GST rollout day getting closer and closer, many Entrepreneurs wonder how to calculate GST payment in a transaction. In this article, we cover all aspects of calculating GST in a business transaction. To calculate GST, the following aspects in a transaction must be considered in a logical, step by step manner.

Determining Value of Supply under GST
Determining Value of Supply under GST

Step 1: Find the GST Rate Applicable for the Goods or Service

The first step in calculating GST is to find the GST Rate applicable for the Goods or Service under the GST Act. Over the past month, the GST Council has conveyed GST rates for almost all goods and services in India.

Find HSN Code or SAC Code

To find GST Rate, we must first make a distinction between the type of supply supplied, i.e., is it a good or service. If the supply is a good, then its important to interpolate with the HSN Code applicable for the Good. HSN Code is an international system for classifying all types of goods in international transactions.

If the transaction involves supply of a service, then the SAC code must be checked to find the relevant SAC code for the service. SAC Code stands for Service Accounting Codes and is used for classification of all services.

Determine the GST Rate applicable for the HSN or SAC Code

Once the HSN or SAC Code is determined for the supply, then the GST Rate for the HSN Code or SAC code can be easily interpolated. GST is levied under 5 different slab rates at NIL, 5%, 12%, 18% and 28% for both goods and services. Hence, the GST rate applicable for the Goods or Service would be any of the slab rates.

Your can easily find HSN Code and GST Rate using Calculator.

Step 2: Determine the Applicability of IGST or CGST and SGST

Once the GST rate is determined, then the applicability of IGST or CGST and SGST must be determined. To determine if IGST or CGST and SGST would be applicable, you will have to determine the place of supply. In most cases, the place of supply of goods or services would be the address where the goods were delivered or the service was provided. For some types of transactions involving e-commerce or OIDAR services, the determination of place of supply is a more complex issue.

Inter-State Supply

If goods or services are provided between two states, i.e., from one state to another, then IGST or Integrated Goods and Services Tax would be applicable on the transaction. Whenever any supplier is involved in providing inter-state supply, GST registration is mandatory.

Intra-State Supply

If the goods or service are provided within the same state, then CGST or Central Goods and Services Tax and SGST or State Goods and Service Tax would be applicable.

Calculating IGST, CGST and SGST

If IGST is applicable and the supply is inter-state, then the entire GST applicable for the HSN or SAC code must be accounted for under IGST. If CGST and SGST is applicable and the supply is intra-state, then the GST applicable for the HSN or SAC code must be divided between CGST and SGST. The calculation for IGST, CGST or SGST is only for classification purposes for crediting the tax revenue to the state of consumption. The GST tax rate would remain same and there would be no double-taxation.

Know more about IGST, CGST and SGST here. 

Step 3: Determine if GST is Chargeable on Reverse Charge Basis

Normally under GST, the supplier of the goods or service is liable to collect tax from the recipient and remit the same with the Government. However, for some services, notified as reverse charge services, the recipient is made liable for payment of GST. Hence, its important to know whether the transaction involves reverse charge under GST.

Check the list of reverse charges services under GST.

Step 4: Is the Supplier Enrolled under GST Composition Scheme

Typically, GST compliance requires the supplier to maintain extensive accounts, records and file 3 GST filing a month. However, many SMEs in India would find GST compliance tough and would require a simpler mechanism. Such businesses having a turnover of less than Rs.75 lakhs, can enroll under the GST Composition Scheme and pay a flat GST based on their aggregate turnover. Suppliers enrolled under GST composition scheme are required to declare on their invoice that they are composition Suppliers and not eligible to collect tax. Hence, its important to check if the supplier is enrolled under GST Composition Scheme.

Know more about GST Composition Scheme.

Step 5: Determine Type of Transaction

Under GST, transactions can be broadly specified under the following three categories:

  • Business to Business
  • Business to Consumer – Value of supply more than Rs.2.5 lakhs
  • Business to Consumer – Value of supply less than Rs.2.5 lakhs.

For a supply to be termed as a B2B transaction under GST and made available for GST input tax credit, both the supplier and the recipient of the goods or service must have a GSTIN. GSTIN is provided when a business obtains GST registration. Do you need GST Registration? Easily find out using this guide.

In a B2C transaction under GST, the recipient of the goods or service would not be eligible for receiving input tax credit. However, in a B2C transaction the recipient need not provide details of his/her GSTIN or GST registration. However, if the transaction value is more than Rs.2.5 lakhs, the recipient would have to furnish details like name, address and other details to determine the place of supply.


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