How do you calculate GST from a GST-inclusive price?

The answer

Divide the inclusive price by (1 + rate ÷ 100) to get the taxable value, then subtract it from the price to get the GST. In one step, GST = inclusive price × rate ÷ (100 + rate). At an example rate of 5%, a ₹840 inclusive price contains ₹800 of taxable value and ₹40 of GST.

An inclusive price already contains the tax, so you cannot take a straight percentage of it. You have to work backwards to the taxable value first.

The formula

The rates below are examples for the arithmetic only. Rates depend on the goods or services and are revised from time to time, so check the current rate for each item on the official GST portal or with your accountant.

Worked examples

Check either answer by working forwards: ₹500 + 18% = ₹590.

Splitting it into CGST and SGST, or IGST

For a sale within your state, the GST is split into two equal halves: in the second example, CGST ₹45 + SGST ₹45 (UTGST instead of SGST in a union territory). For a sale to another state, the whole ₹90 is IGST. The total is the same either way; the split depends on the place of supply.

The common mistake

Taking the rate straight off the inclusive price: 18% of ₹590 is ₹106.20, not ₹90. That overstates the tax by ₹16.20 and understates your taxable sales by the same amount. The tax is a percentage of the taxable value, not of the total.

Two other points to watch:

• Rounding. Tax worked out per line and per bill can differ by a paisa. Pick one method and use it consistently.
• Margins. Always calculate profit on the taxable value, never on the inclusive price. See how to calculate profit margin.

The full guide to GST-inclusive and exclusive prices covers discounts, shelf prices and rounding. For a quick answer, the GST calculator removes GST from any amount and shows the split. Billing software such as BILL OS works out the taxable value and tax on each bill line from the rate stored against the product.

Related questions

• How do you calculate profit margin?Profit margin is profit as a share of the selling price: (selling price − cost) ÷ selling price × 100. A bag that costs ₹840 and sells for ₹1,200 make…
• How do you calculate markup on cost?Markup is profit as a share of the cost price: (selling price − cost) ÷ cost × 100. An item bought for ₹250 and sold for ₹350 has a ₹100 profit and a …

General information, not legal, tax or financial advice. Published by Chameron Digital.