What exact meaning of gst?



 Finance write for us The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. In effect, GST provides revenue for the government.

 
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KVO Merau Kutchh

How GST Works – An Illustration

Stage 1 |  The Manufacturer: Let’s assume a manufacturer of shirts buys a raw material to weave a cloth – thread, buttons, tailoring equipment which cost him Rs 100, a sum that includes a tax of Rs 10. With the available raw material, the manufacturer manufactures a shirt. The manufacturer adds value to the materials in the process of creating the shirt.  Let us assume the value added by him to be Rs. 30. Then the gross value of the shirt becomes Rs 130, (Rs 100 + 30). At a rate of 10%, the tax on output on shirt will then be Rs 13. But under GST, he can set off this tax Rs 13 against the tax, as he has already paid on raw material and inputs Rs 10. Therefore, the effective GST incidence on the manufacturer is only Rs.3 this way Rs.13-10, making GST a tax only on the value added. 

Stage 2 | The Distributor or Service Provider: The consecutive stage is that of the good passing from the manufacturer to the wholesaler, a service provider. The wholesaler buys it for Rs.130 and adds on value which is the margin of for assumption say Rs.20. Then the gross value of the goods the wholesaler sells would then becomes a total of Rs 150 (Rs130 + 20). A 10% tax on this amount will become Rs 15. But again, under GST, one can set off the tax on his output Rs 15 against the tax on his purchased good from the manufacturer Rs 13. Thus, ultimately the effective GST incidence on the wholesaler is only Rs.2 (15 – 13).

Stage 3 | The Consumer: Finally a retailer buys the shirt from the wholesaler. He adds a margin of Rs.10 to his purchase of Rs.150. Therefore the gross value of the shirt he sells goes up to Rs.160 (Rs.150 + 10). At this stage the tax a 10% will be Rs.16. By setting off this tax (Rs.16) against the tax on his purchase from the wholesaler (Rs 15), the retailer brings down the effective GST incidence on himself to Rs.1 (16 –15). Thus we come to an conclusion of the total GST on the entire value chain from raw material i.e. input suppliers (who can claim no tax credit since they haven’t purchased anything themselves) through the manufacturer, wholesaler and retailer is Rs 10+3+2+1 = Rs 16 as a grand total, which is finally borne by the consumer.

 

Courtesy: https://www.indiafilings.com/learn/how-gst-works-in-india/


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The goods and services tax (GST) is an indirect federal sales tax that is applied to the cost of certain goods and services. The business adds the GST to the price of the product and a customer who buys the product pays the sales price plus GST. The GST portion is collected by the business or seller and forwarded to the government.

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