[Economy 4 Newbie] V & GST (basic stuff) Mrunal AT

http://mrunal.org/2010/02/economy-4-newbie-vat-gst-basic-stuff.html

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[Economy 4 Newbie] V & GST (basic stuff) Mrunal AT

http://mrunal.org/2010/02/economy-4-newbie-vat-gst-basic-stuff.html

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 already paid tax on it earlier! And if youve to pay that again = cascading effect = snowball = it keeps increasing = this is the problem with sales tax. So you should be required to pay tax only on the new value which I added to Lemon-SugarWater.= 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 while reading following] Whole-seller ->Me the ice-cream shop owner -> You, the customer 10% GST on on everything

I bought milk 100 Rs. + sugar 100 Rs. From the wholesaler There is 10% Tax so, (10 Rs. On Milk + 10 Rs. On Sugar) = 20 Rs. Tax paid to wholesaler Now I write it in my account-book that I paid 20 Rs. GST-Tax to him 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 only value that I added! The technical words for this book-keeping etc. are tax credit/ setting off liability etc.

1. 2. 3. 4.

First, GST is not one there will be two GST on each good/service 1. State GST 2. 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. will collect 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 herself Now the technically correct table

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[Economy 4 Newbie] V & GST (basic stuff) Mrunal AT

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[Economy 4 Newbie] V & GST (basic stuff) Mrunal AT

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[Economy 4 Newbie] V & GST (basic stuff) Mrunal AT

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[Economy 4 Newbie] V & GST (basic stuff) Mrunal AT

http://mrunal.org/2010/02/economy-4-newbie-vat-gst-basic-stuff.html

about ... [Economy] What If Greece Exits from Eurozone? Implications on Indian and World Economy Past few weeks, media is talking about Greeces possible exit from Eurozone and its impact on India. Before going into Greeces possible ... [Economy] Multi-level TDS on Softwares Removed: Yet another Reform to boost GDP Present Tax-structure on sale of softwares Under the current structure, TDS of 10 per cent is levied at every level of software ...
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February 8th, 2010 | Category: Economy

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

vipnip
Fe brua ry 9, 2010 a t 9: 48 a m Re pl y as agai n ni c e c ol l ec ti on w e l l done and tha nks .

vipnip
Fe brua ry 9, 2010 a t 9: 50 a m Re pl y as us ua l ni ce note a qui c k revi s i on note thanks a l ot

Shikha
Fe brua ry 9, 2010 a t 4: 43 pm Re pl y how a nc i l l a ri s ati on i s adva ntageous i f i t i s agai ns t na ti ona l pol i cy a nd di sc oura ge s grow th of s mal l sc al e i ndustr y?

silvers park
Fe brua ry 10, 2010 at 6: 21 pm Repl y good for ec onomy-i di ots l i ke us!! ; )

juhi bansal
Apr i l 3, 2010 at 11: 40 am Repl y he y i ts r el e kew l xtreme l y compl i ca ted s tuf tra ns for med i nto etr eme l y s i mmpl e s tuffha ts off 2 u

Velmurugan
Fe brua ry 21, 2011 a t 8: 33 a m Re pl y w onde rful a rr ange ment of fa cts .

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http://mrunal.org/2010/02/economy-4-newbie-vat-gst-basic-stuff.html

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