1. Commercial Mathematics

GST: An indirect tax levied on the supply of goods and services.

CGST and SGST: Central GST and State GST – each charged at 50% of the total GST when goods/services are sold within a state.

IGST: Integrated GST – charged on inter-state supply.

Goods and Services Tax (GST) is an indirect tax that applies to the supply of goods and services. It means that when you purchase an item or get a service, a certain percentage of the price is added as tax. This tax is collected by the government. In India, there are different types of GST:

• CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax) are levied when transactions occur within a single state. They are split evenly, so each takes 50% of the total GST applied.
• IGST (Integrated Goods and Services Tax) is applied when goods or services are sold between different states, ensuring that the tax is correctly allocated between the central and state governments.

Consider when you go to a restaurant and order food worth ₹1,000. The restaurant will charge you GST on top of this amount. If the total GST is 18%, you will actually pay ₹1,180 because ₹180 is the GST collected. This illustrates how GST is applied in everyday transactions.

Formulas

• GST = Taxable Amount × GST Rate
• Final Price = Cost Price + GST
• Input Tax Credit (ITC): Credit received for tax paid on purchases.
• Net GST Payable = Output GST – Input GST

There are several important formulas related to GST that help determine the tax amount and the final price of goods and services:

1. GST = Taxable Amount × GST Rate: This formula helps you calculate how much GST you need to pay based on the taxable amount of goods/services you are purchasing and the rate of GST that applies.
2. Final Price = Cost Price + GST: After calculating GST, you can find out the final price you need to pay by adding the GST to the original cost.
3. Input Tax Credit (ITC) allows businesses to reduce the tax they have to pay based on the tax they have already paid on their purchases.
4. Net GST Payable helps determine how much GST a business has to pay to the government, taking into account the GST they have collected from sales (Output GST) minus the GST they have paid on purchases (Input GST).

If you buy a dress for ₹2,000 with an 18% GST:

• GST = ₹2,000 × 18% = ₹360.
• Therefore, the final price you would pay is ₹2,000 + ₹360 = ₹2,360. If you later sell that dress for ₹2,500 and collect 18% GST, you can use the input credit to pay the difference in tax amount. This way businesses are not double taxed on the same transaction.

Example

A shopkeeper buys goods worth ₹10,000 at 18% GST and sells them for ₹15,000.

• Input GST = ₹10,000 × 18% = ₹1,800
• Output GST = ₹15,000 × 18% = ₹2,700
• Net GST = ₹2,700 – ₹1,800 = ₹900

Here's a practical example of how GST works:

• A shopkeeper purchases goods worth ₹10,000. At an 18% GST rate, the GST added is ₹1,800.
• Later, when the shopkeeper sells these goods for ₹15,000, the GST collected from the buyer is ₹2,700.
• To determine how much GST the shopkeeper needs to pay to the government, subtract the Input GST (the tax amount from the purchase) from the Output GST (the tax amount collected from the sale). So, the Net GST payable will be ₹900.

Imagine you are running a small grocery store. You buy fruits costing ₹10,000, paying an additional ₹1,800 as GST. Later, you sell those fruits for ₹15,000. You collect ₹2,700 from your customer as GST. Before you pay taxes, you subtract what you already paid when you bought the fruits, making your final tax payment ₹900. This shows the flow of tax through buying and selling processes.

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