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If GST is a value added tax, then why am I charged GST on the total price? Shouldn't be it on the value added?

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If GST is a value added tax, then why am I charged GST on the total price? Shouldn't be it on the value added?
posted Dec 12, 2017 by Deepak Jangid

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1 Answer

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GST is a value added tax” is not a conclusive statement.

The conclusive statement is -

“GST is a tax charged on supply of goods and services. It is an indirect tax since the final burden of tax comes on the consumers, since they have to pay tax on the total price of the product. It is a Value Added Tax, since at each point of sale (from manufacturer to wholesaler, from wholesaler to retailer and from retailer to consumer), GST is charged only on value addition.”

How is it charged on value addition?

Let’s take an example to understand the concept of value addition -

Suppose Manufacturer manufactures product X and sells it the wholesaler for Rs. 1,000. Total Value Addition = Rs. 1,000, GST = Rs. 180 (assuming 18% GST rate).

Wholesaler sells the product to the retailer for Rs. 1,500. Value Addition = Rs. 500 (1,500 - 1,000). GST = Rs. 90 (18% GST rate)

Retailer further sells the goods to the consumer for Rs. 3,000. Value Addition = Rs. 1,500 (3,000 - 1,500) = Rs. 1,500. GST = Rs. 270 (18% GST rate)

Total price to you = Rs. 3,000, GST = Rs. 540.

I hope you understand the concept.

answer Dec 13, 2017 by Raghav Choudhary
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