What is GST bill?

GST, short for Goods and Services tax, is a new tax that will be imposed on the sale and purchase of goods and services in India. GST is meant to replace all taxes in India with a single unified tax applied to value addition instead of the total value of the product at each stage in the supply chain.

This method provides credit for the input tax paid on the purchase of goods and services, which can be offset with the tax to be paid on the supply of goods and services. As a result, this reduces the overall manufacturing cost, with the end customer paying less.

To understand all about GST, let’s take an example:

A farmer sells milk to an ice cream manufacturer, who then processes the milk to make ice cream and sells it to several retail stores.

The farmer sells the milk at Rs.10. If the GST rate is 10%, then the added tax will be Rs.1, so the ice cream manufacturer will purchase milk for Rs.11 (10 + GST 10%).

After making the Ice Cream, he adds Rs. 10 as his margin, so his total sale price will be Rs.20 i.e. (Cost of Goods sold Rs.10 + his margin Rs.10). Here Cost of Goods Sold is taken as Rs.10 (Purchase price Rs.11 - Rs.1 of GST because the manufacturer will take input credit).

So, the manufacturer sells his ice cream to a retailer for Rs. 22 i.e. Rs.20 + 10% GST (Rs.2).

The retailer then adds a value of Rs. 10 to his Cost of Goods sold Rs.20, by following the same pattern as from Farmer to Ice cream manufacturer (Purchase price Rs. 22 – Rs. 2 of GST because the retailer will take input credit).

So, the Retailer sells his ice cream to a customer for Rs. 33 i.e. Rs.30 + 10% GST

GST Liability for each is as follows:

How does GST work

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