Is vat calculated on mrp or the selling price?

First of all, you cannot deduct tax. You have to Collect tax. Your MRP should be inclusive of VAT. So, fix your selling price in such a manner that it is including VAT but it does not exceed MRP. A product may be sold by the manufacturer to wholesaler or distributor for Rs.5. Manufacturer should collect tax in addition to Rs.5 from wholesaler. Wholesaler may sell it to retailer for Rs.7+VAT. Retailer will sell to consumer for Rs.8+VAT. During all these, every middleman will claim input tax credit on the purchase made by him. Every middleman will collect tax from the person who buys the product from him. So, when the ultimate consumer will get the product for Rs.8+ VAT say at Rs.8.40, the maximum retail price shall be fixed not exceeding Rs.10. In your case, you are going to sell it online. So first make up a cost sheet and fix your margin. Say you have fixed at Rs.10. Then your Selling price will be Rs.10+VAT. If you keep your MRP as Rs.15 which is inclusive of all taxes, then do reverse workings according to your local VAT rates and deduct tax portion from such MRP and see whether it meets your margin requirement. If it satisfies, then you can keep it at 15. Else, you have to raise your MRP. Hope this answer makes you clear.