Understanding GST: What Does it Mean For Businesses?

GST

As you all know , GST stands for Goods and Services Tax. Even if you are somewhat unfamiliar with the concept of GST, I can assure you have more experience with it than you had like to realized With this in mind, you begin to feel how much our lives are impacted let alone our businesses. Continue reading if you are like to find out more about GST, how to calculate GST and what this means for your in business?

An Example :-

  • Let us assume that a dealer in Haryana had sold the goods to a dealer in Punjab worth Rs. 20,000/-. The tax rate is 18% comprising of only GST.

In such case, the dealer has to charge Rs. 3600/- as GST. This revenue will go to the Central Government.

  • The same dealer sells goods to a consumer in Haryana worth Rs. 20,000. The GST rate on the good is 12%. This rate comprises of  CGST at 6% and SGST at 6%.

The dealer has to collect Rs. 2,400/- as Goods and Service Tax. Rs. 1,200/- will go to the Central Government and Rs. 1,200/- will go to the Gujarat government as the sale is within the state.

Let us take out every point very clearly :-

 GST:-

GST was passed as legislation in 1996 and came into effect on 1st July 2017. The primary goal is to simplify and overhaul the existing sales tax system and other state and territory taxes with a single 10% tax.Goods and Services are divided into five different tax -0% , 5% , 10%, 18% and 28% . The reason for enforcing GST was to support a common goal. The common goal being the backing of common resources such as police and firefighter wages and road and public space repair.

How Do I Calculate It?

If you have a own  business you will need to be able to pay single tax known as Goods and Services Tax (GST). Luckily, there is a simple formula that you can use that will give you guarantee results. When you had determined the price of an item or a service for a client you can multiply this by 1.1 and you will be given a price that is inclusive of GST.

Let be take an illustration :-

we take the example of manufacturer along with some numbers, let’s see what happens to the cost of goods and the taxes in the earlier and GST regimes.

Tax calculations in earlier regime:

ActionCost10% TaxTotal
Manufacturer10001001,100
Warehouse adds a label and repacks @ Rs. 3001,4001401,540
Retailer advertises @ Rs. 5002,0402042,244
Total1,8004442,244

Firstly, you have to understood this concept of tax i.e.,Cascading Effect of Taxes:-As we take an example of manufacturer how he dealt with buyer and how does transactions all such goes to central government, the liability of tax was passed on at every stage of the transaction and the final liability comes to rest with the customer. This is called the Cascading Effect of Taxes where a tax is paid on tax and the value of the item keeps increasing every time this happens.

Tax calculations in current regime: 

ActionCost10% TaxActual LiabilityTotal
Manufacturer1,0001001001,100
Warehouse adds label and repacks @ Rs. 3001,300130301,430
Retailer advertises @ Rs. 5001,800180501,980
Total1,8001801,980

In the case of Goods and Services Tax, there is a way to claim credit for tax paid in acquiring input. What happens in this case is, the individual who has paid a tax already can claim credit for this tax when he submits his taxes.

In the end, every time an individual is able to claim the input tax credit, the sale price is reduced and the cost price for the buyer is reduced because of lower tax liability.

GST regime has also brought a centralised system of waybills by the introduction of “E-way bills”. This system was launched on 1st April 2018 for Inter-state movement of goods and on 15th April 2018 for intra-state movement of goods in a staggered manner. Under the e-way bill system, manufacturers, traders & transporters are now able to generate e-way bills for the goods transported from the place of its origin to its destination on a common portal with ease. Tax authorities are also benefitted as this system has reduced time at check- posts and help reduce tax evasion.

What Does it Meant For My Business?

As previously mentioned GST is added to the price of all goods and services before you pay for them. That’s why most people are unaware of how much GST they pay and how often. This works well for most as they pay a stated price in a store and don’t have to make any calculations. It isn’t, however, as simple for business owners.

It’s the responsibility of a business owner to add GST to their prices for service or goods, send that money to the ATO and claim back GST that you are charged on expenses and supplies. The best place to brush up on your responsibilities and get an idea of best practise is by referring to government and ATO official documents.

Also read this: Inside List Of GOP Tax, Bill Will Surprise You For Sure

Reporting Obligations

A business activity statement is used to report all your periodic tax entitlements and obligations. For all sales, you will need to report GST charged and the credits on your business purchases. Large businesses that turn over more than $20 million must complete a business activity statement on a monthly basis, but if you are like most of us and your net profit is less than that, you can do this quarterly. Information such as total sales, export sales and capital sales, to name but a few will need to be included in your report.

For further reading and understanding, check out  :-

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