1.3.2. Formulas

● GST = Taxable Amount × GST Rate

The GST formula calculates the amount of Goods and Services Tax that needs to be paid based on the taxable amount and the GST rate. To find out the total GST, you simply multiply the taxable amount (the price of goods or services subject to GST) by the GST rate (a percentage). This gives you the GST amount that will be added to the price.

Imagine you are buying a new smartphone that costs ₹20,000, and the GST rate is 18%. To find the GST, you multiply ₹20,000 by 0.18 (which is the same as 18%). So, ₹20,000 × 0.18 = ₹3,600. Thus, you would pay ₹3,600 as GST on your smartphone.

● Final Price = Cost Price + GST

The formula for calculating the Final Price allows you to find out how much you will actually pay for a good or service after including GST. You start with the Cost Price (the actual price before any tax) and add the GST calculated from the previous formula to this cost. The result is the total price you need to pay.

Continuing with the smartphone example, if the Cost Price of the phone is ₹20,000 and the GST is ₹3,600, the Final Price would be: ₹20,000 + ₹3,600 = ₹23,600. This is the total amount you need to pay to buy the phone.

● Input Tax Credit (ITC): Credit received for tax paid on purchases.

Input Tax Credit is a facility that allows businesses to reduce the tax they need to pay on their sales by considering the GST they have already paid on their purchases. This means if a business buys goods and pays GST, they can use that GST amount to offset the GST they collect from their customers when selling their products.

Think of it like storing water in a tank. When you fill up your tank (paying GST on your purchases), you can then use that water when needed (using ITC) to make sure you’re not wasting resources. For instance, if a shopkeeper buys goods and pays ₹1,800 in GST, and later sells them and has to collect ₹2,700 in GST, they can apply this ITC to lower what they owe.

● Net GST Payable = Output GST – Input GST

This formula helps determine how much actual GST a business needs to pay to the government after accounting for the GST it has already paid on its purchases (Input GST). To find the Net GST Payable, you subtract the Input GST from the Output GST (the GST collected from customers). If the Output GST is greater, then you owe money; if it is equal to or less, you may even get a refund.

Imagine you sell lemonade. You collect ₹2,700 in GST from selling your lemonade, but you also paid ₹1,800 in GST for the ingredients. Your Net GST Payable would be ₹2,700 - ₹1,800 = ₹900. This means you need to pay ₹900 to the government, like settling your tab after a party!

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

This example illustrates how to apply the formulas we just learned. The shopkeeper buys goods worth ₹10,000, and the GST rate is 18%. The Input GST is calculated as ₹10,000 × 0.18, which equals ₹1,800. When the shopkeeper sells the goods for ₹15,000, the Output GST is ₹15,000 × 0.18, resulting in ₹2,700. The net amount payable to the government is calculated by subtracting the Input GST from the Output GST: ₹2,700 - ₹1,800 equals ₹900.

This is similar to running your own lemonade stand! You buy lemons and sugar for ₹10,000 and pay ₹1,800 in GST. When you sell the lemonade, you charge ₹15,000 and collect ₹2,700 in GST. By subtracting what you paid from what you collected, you find you owe ₹900 in taxes to the government—just like keeping track of your earnings and expenses to know how much profit you made.

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