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

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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 you’ve 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 value which 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 don’t just keep reading else you’ll get lost/confused in the example so, keep a note & pen - andmake as diagram out of it while reading following…]Whole-seller ->Me the ice-cream shop owner -> You, the customer10% GST on on everything

1. I bought milk 100 Rs. + sugar 100 Rs. From the wholesaler2. 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, I’ve set the price 250 Rs.

a. Input cost= 100 Milk + 100 Sugar = 200b. + 50 Rs. My profit margin (=this is the ‘value’ I added)c. =200 + 50 = 250.

(you’d wonder why did not I count 20 Rs. Tax in input cost?…well I’ll 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 don’t 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 I’ve to pay to Govt. as GST!

Take note friend, I had done value addition of only 50 Rs. & now I’ve to pay tax of 5 Rs = see this GST is tax onlyvalue 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/service1. State GST2. Central GST· So in my GST example, I’ve to keep two books one for SGST+ one for CGST.· When you pay me money, I’ve to write it in those two separate books again.

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

Now the technically correct table

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

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

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

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

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about ...[Economy] What If Greece Exits from Eurozone? Implicationson Indian and World EconomyPast few weeks, media is talking about Greece’s possible exitfrom Eurozone and its impact on India. Before going intoGreece’s possible ...[Economy] Multi-level TDS on Softwares Removed: Yetanother Reform to boost GDPPresent Tax-structure on sale of softwares Under the currentstructure, TDS of 10 per cent is levied at every level ofsoftware ...

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February 8th, 2010 | Category: Economy

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

vipnipFebruary 9, 2010 a t 9:48 am · Repl y

as agai n nice col lection wel l done and thanks ……….

vipnipFebruary 9, 2010 a t 9:50 am · Repl y

as usual nice note… a quick revis ion note thanks a lot

ShikhaFebruary 9, 2010 a t 4:43 pm · Repl y

how anci l lar isati on is advantageous i f i t i s agai ns t national pol icy and di scourages growth of smal l scal eindustry?

silversparkFebruary 10, 2010 at 6: 21 pm · Reply

good for economy-idiots l ike us!! ; )

juhi bansalApr i l 3, 2010 at 11:40 am · Reply

hey i ts r el e kewl…xtremely compl icated s tuf transformed into etr emely s immple s tuff…hats off 2 u…

VelmuruganFebruary 21, 2011 a t 8:33 am · Repl y

wonderful arr angement of facts…….

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

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

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