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nomy 4 Newbie] VAT & GST (basic stuff) Mrunal http://mrunal.org/2010/02/economy-4-newbie-vat-gst-basic

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I had bought above 3 things from another guy and had paid taxes.

When I sell lemon juice to you, you should not pay tax for those 3 things again! Because I alreadypaid tax on it earlier!

And if youve to pay that again = cascading effect = snowball = it keeps increasing = this is theproblem with sales tax.

So you should be required to pay tax only on the new valuewhich I added to Lemon-Sugar-Water.= this is the heart of VAT / GST= remove the cascading effects

This example applies to both VAT & GST (for GST more technical corrections given later)

Suppose this is the chain>

[Now dont just keep reading else youll get lost/confused in the example so, keep a note & pen - and

make as diagram out of it w hile reading foll owing]

Whole-seller ->Me the ice-cream shop owner -> You, the customer

10% GST on on everything

1. I bought milk 100 Rs. + sugar 100 Rs. From the wholesaler

2. There is 10% Tax so, (10 Rs. On Milk + 10 Rs. On Sugar) = 20 Rs. Tax paid to wholesaler3. Now I write it in my account-book that I paid 20 Rs. GST-Tax to him4. I make icecream, Ive set the price 250 Rs.

a. Input cost= 100 Milk + 100 Sugar = 200

b. + 50 Rs. My profit margin (=this is the value I added)c. =200 + 50 = 250.

(youd wonder why did not I count 20 Rs. Tax in input cost?well Ill recover those 20 Rs. in Point #8.)

5. On 250 Rs. Selling price, obviously 10% GST tax = 25 Rs.6. So customer has to pay 250+25= 275 Rs. For Ice-cream, I collect that money.7. Again in my book, I write that I got 25 Rs. GST Tax from customer.8. But I dont have to pay that 25 Rs. To Govt. !! lolz because my book shows that I already paid 20 Rs.To my previous wholesaler (who paid those 20 Rs. To Govt.)

9. Thus in my book I show calculation : 25 minus 20 = 5 Rs. Only Ive to pay to Govt. as GST!Take note friend, I had done value addition of only 50 Rs. & now Ive to pay tax of 5 Rs = see this GST is tax onl

value that I added!

The technical words for this book-keeping etc. are tax credit/ setting off liability etc.

First, GST is not one there will be two GST on each good/service

1. State GST2. Central GST

So in my GST example, Ive to keep two books one for SGST+ one for CGST.

When you pay me money, Ive to write it in those two separate books again.

If the product goes from one state to another state then theyll charge IGST = integrated GST= central Govt. willcollect it. (currently Central Govt. takes about 2% Central Sales Tax on such deals, but itll stop after GST

comes.)

More on IGST will be written later,

For the time being, (just a crude example)

1. If Orissa wholesaler sells Steel pipes to Gujarat & has to give suppose 10 Rs. Tax then Orissa Govt.will collect it & send it to Delhi.

2. Out of that, Delhi collects 5 Rs. Gujarat & keeps 5 Rs. For herselfNow the technically correct table


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February 8th, 2010 | Category: Economy

14 comments to [Economy 4 Newbie] VAT & GST (basic stuff)

vipnipFebruary 9, 2010 at 9:48 am Reply

as again nice col lection well done and thanks .

vipnip

February 9, 2010 at 9:50 am Replyas usual nice note a quick revision note thanks a lot

ShikhaFebruary 9, 2010 at 4:43 pm Re ply

how ancillaris ation is advantageous i f it is against national policy and discourages growth of small sc aleindustry?

silversparkFebruary 10, 2010 at 6:21 pm Reply

good for economy-idiots like us!! ; )

ju hi ba nsalApril 3, 2010 at 11:40 am Reply

hey its rele kewlxtremely complicated stuf transformed into etremely simmple stuffhats off 2 u

VelmuruganFebruary 21, 2011 at 8:33 am Reply

wonderful arrangement of facts.


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vat gst basic stuff mrunal

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