Preparing Invoices Post GST Implementation: Understanding the GST Calculation Method

Preparing Invoices Post GST Implementation: Understanding the GST Calculation Method

Understanding GST Calculation

Goods and Services Tax (GST) is a value-added tax (VAT) levied on the supply of goods and services in India. The GST is an indirect tax which is levied on the value added at each stage of the supply chain. However, the actual GST calculation is more complex and involves adding various charges and expenses to the final selling price.

GST Calculation Formula

The GST is charged on the amount as computed below:

Value charges for goods/services supplied/to be supplied Add: Freight/Insurance/Packing charges Add: Any other tax paid on the goods Add: Any supply linked subsidy received other than by central government or state government Add: Damage Discount i.e. discount effected after making supply of goods/services

Note: The value assessable to GST shall not include any quantity/cash discount given at the time of making supply. In other words, GST shall not be charged on the amount of quantity/cash discount given.

In simple words, GST is to be charged on the Final Selling Price as indicated in the Invoice, provided the price is available and reliable, and not just on the value added.

Input Tax Credit Eligibility

A taxable person can always claim Input Tax Credit (ITC) of goods/services consumed to make the final supply of goods/services. This means that the GST paid on the inputs used in the production or supply of goods or services can be claimed as a credit against the GST liability.

Calculation of GST Under Normal Circumstances

It will be calculated on the sale price under normal circumstances. However, you will get credit for any GST paid on inputs used. This credit mechanism ensures that you do not pay GST twice on the same supply, making it a fair and transparent system.

Examples of GST Calculation

Let us consider a scenario where a company sells a product for Rs. 10,000 including GST. The company also incurred various expenses as follows:

Value charges: Rs. 8,000 Freight charges: Rs. 500 Packing charges: Rs. 300 Damage discount: Rs. 200 Tax paid on goods: Rs. 1,000 Subsidy received: Rs. 500

Based on the above details, the GST charged on the sale would be calculated as follows:

Total amount: Rs. 10,000 Value charges: Rs. 8,000 Freight/Insurance/Packing charges: Rs. 500 Rs. 300 Rs. 800 Tax paid on goods: Rs. 1,000 Subsidy received (excluding central and state government subsidies): Rs. 500 Damage discount: Rs. 200 (not considered for GST)

Therefore, the total value for GST calculation would be:

8,000 (value charges) 800 (freight/insurance/packing charges) 1,000 (tax paid on goods) 500 (subsidy received) Rs. 10,300

Assuming a GST rate of 18%, the GST amount would be:

10,300 * 18 / 100 Rs. 1,854

Invoice Preparation Guidelines

To ensure compliance with GST regulations, the following steps are essential for the preparation of invoices:

Ensure that all the charges and expenses are reflected accurately in the invoice. Clearly indicate the final selling price as the basis for GST calculation. Incorporate any input tax credits claimed by the seller. Provide transparent and reliable pricing information to avoid disputes.

Conclusion

Maintaining accurate and transparent invoices is crucial to meeting GST compliance requirements. Understanding the calculation method and ensuring proper invoice preparation will help businesses navigate the complexities of GST effectively.