12 July 2017
A practical doubt. A product in the stock of a retailer. It has 5 % Excise duty and 5 % VAT. So if the selling price is 100 he sold it as 100 plus 5 % VAT and 105. Suppose Now GST for the same product is 12% he sold it for 112.Customers are paying 7 Rs more. Is it the correct procedure the retailer is doing ?
27 July 2024
When transitioning from the old tax regime (with Excise Duty and VAT) to the GST regime, it's essential to ensure that the pricing adjustments and tax calculations are done correctly. Let's break down the situation:
### Old Tax Regime Calculation
1. **Excise Duty**: 5% 2. **VAT**: 5%
For a selling price of ₹100: - Excise Duty: 5% of ₹100 = ₹5 - VAT: 5% = 5% of ₹105 = ₹5.25 - Total Selling Price: ₹110.25
### New GST Regime Calculation
Under GST, the tax rate for the product is 12%. GST is applied to the selling price, so:
In the old regime: - Effective Selling Price = ₹110.25
In the new GST regime: - Effective Selling Price = ₹112
### Customer Impact
The customer pays ₹7 more in the new GST regime compared to the old regime. This increase is a result of the different tax structures and rates.
### Correct Procedure for Retailer
1. **Price Adjustment**: The retailer should adjust the selling price to account for the difference in tax rates and ensure that the new price reflects the GST-inclusive amount. This adjustment is necessary to comply with GST regulations.
2. **Tax Calculation**: GST is levied on the selling price directly. Unlike VAT, which was applied to the selling price plus excise duty, GST is applied uniformly.
3. **Communicate Change**: Retailers should communicate any changes in pricing to customers transparently and ensure that the new pricing is properly reflected in invoices and billing systems.
4. **Compliance**: Ensure that the tax rate applied (12% in this case) aligns with the GST rate for the product. Accurate and transparent GST application is crucial for compliance.
### Conclusion
Yes, it is correct that the retailer is charging ₹112 under GST, as the GST regime requires the entire selling price to be inclusive of the GST rate. The increase in price is due to the higher GST rate compared to the combined effect of Excise Duty and VAT in the old regime.
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