Posted by Anjali Kaur on Jan 12, 2021

Goods and Services Tax

Taxes refer to the charges that are levied on all the goods and services that we buy or sell. Taxes are paid by the individuals to the government that is spent on the expenditures related to the country’s development. So, after the Demonetization was done in India in 2016, the introduction of the Goods and services tax took place. In 2017, the GST Bill was passed in the Lok Sabha and Rajya Sabha. On 1st July 2017, the GST Law came into force.

Meaning of GST

Goods and Services Tax is a destination-based single tax on the supply of goods and services from the manufacturer to the consumer. A single tax collection from the manufacturer to the consumer to remove multiple indirect taxes levied by the Central and State government. Remember, GST is an indirect tax. Taxes like Value added tax have been removed after the implementation of GST.

Things to know about GST to solve problems in applied mathematics

  1. It is paid by each person involved in the cycle of sale and purchase until it reaches the final consumer.
  2. GST could be intrastate, that is, within a state or it could be interstate, that is outside a state.
  3. If the manufacturer is selling a product to a dealer, then the GST (including CGST and SGST) collected by the manufacturer from a dealer is the same as the GST paid by the dealer. This is called INPUT GST.
  4. If the same dealer sells the product to the consumer, then the GST (including CGST and SGST) collected by the dealer from a consumer is the same as the GST paid by the consumer. This is called OUTPUT GST.
  5. To calculate GST BY-DEALER = Output GST – Input GST, where output is received and input is already paid. This helps in avoiding the problem of double counting.
  6. In each question, it is recommended that we must calculate input CGST, input SGST, output CGST, and output SGST.

Let’s see some problems related to intrastate GST.

  1. Manufacturer A sells a washing machine to a dealer B for 12500. The dealer B sells it to a consumer at a profit of 1500. If the sales are intra-state and the rate of GST is 12%, find:
    1. The amount of tax paid by the dealer B to the Central Government.
    2. The amount of tax received by the State Government.
    3. The amount that the consumer pays for the machine.

Solution: Step 1: Find input CGST which is same as the CGST collected by the manufacturer or the CGST paid by the dealer to the manufacturer-

Whatever is the GST rate, it is divided equally among the CGST and the SGST, in this question it will be 6% for each. (12% divided by 2)

Input CGST = 6% of 12500 = 750

Step 2: Find input SGST which is same as the CGST collected by the manufacturer or the CGST paid by the dealer to the manufacturer-

Input SGST = 6% of 12500 = 750

Step 3: Now the washing machine is further sold by the dealer to the consumer at a profit of 1500. So, the consumer will pay CGST and SGST on 12500 + 1500 = 14000.

CGST paid by the consumer or the CGST paid by the dealer to the Central Government is same as the Output CGST = 6% Of 14000 = 840

Step 4: Find Output SGST which is same as the SGST paid by the consumer or the SGST paid by the dealer to the State Government = 6% of 14000 = 840

Now, after finding all the 4 main taxes, we will attempt the question asked:

  1. The amount of tax paid by the dealer B to the Central Government.

Input CGST was given by the dealer B to manufacturer = 750

Output CGST received by the dealer from the consumer = 840

The amount of tax paid by the dealer B to the Central Government = Output CGST – Input CGST = 840 – 750 = 90

2. The amount of tax received by the State Government.

In this question they are asking the full tax received by the State Government = Output SGST = 840

3. The amount that the consumer pays for the machine.

= Price of washing machine + Output CGST + Input SGST

= 14000 + 840 + 840 = 15680

Time to Test Yourself

1. A shopkeeper buys an article whose printed price is 4000 from a wholesaler at a discount of 20% and sells it to a consumer at the printed price. If the sales are intrastate and the rate of GST is 12%, find:

  1. The price of the article inclusive of GST at which the shopkeeper bought it.
  2. The amount of tax paid by the shopkeeper to the State Government.
  3. The amount of tax received by the Central Government.
  4. The amount which the consumer pays for the article.

2. The printed price of an AC is 45000. The wholesaler allows a discount of 10% to a dealer. The dealer sells the air conditioner to a consumer at a discount of 4% on the marked price. If the sales are intra-state and rate of GST is 18%, find:

  1. The amount of tax paid by the dealer to the Central and State Governments. 
  2. The amount of tax received by Central and State Governments.
  3. The total amount paid by the consumer for the air conditioner.

3. A retailer buys a TV from a manufacturer for 25000. He marks the price of the TV 20% above his cost price and sells it to a consumer at a 10% discount on the marked price. If the sales are intra-state and rate of GST is 12%, find:

  1. The marked price of the TV.
  2. Consumer’s is cost price of TV inclusive of tax.
  3. GST paid by the retailer to the Central and State Governments. 

4. A manufacturer sells a T.V. to a dealer for 18000 and the dealer sells it to a consumer at a profit of 1500. If the sales are intra-state and the rate of GST is 12%, find:

(I) the amount of GST paid by the dealer to the State Government.

(ii)the amount of GST received by the Central Government.

(ii) the amount of GST received by the State Government.

(iv) the amount that the consumer pays for the T.V.

In case of any query contact me: contact@learnwithanjali.com

You can check the following posts related to applied mathematics:

  1. What are functions?
  2. What is probability?
  3. Relations and functions
  4. Sets and Venn diagram
  5. What are the different types of sets?
  6. Set theory

Happy Learning!

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