GST payable is the tax a business owes to the government after offsetting the GST collected on sales against the input tax credit (ITC) it holds on purchases.The basic formula is:
GST payable = output tax liability minus ITC.
To arrive at the output tax liability, you first calculate the GST on the taxable value of your supplies using the applicable rate.
The calculation method depends on whether the price already includes GST. Each situation requires a different formula, as GST-inclusive and GST-exclusive prices are calculated differently.
What are the formulas to calculate GST payable?
Both formulas are used in legitimate business situations. Which one you apply depends on how your transaction is structured.
When GST is added on top of the base price (exclusive)
This is the more common scenario for business-to-business (B2B) transactions. You know the price before GST and add tax on top.
GST amount = (Taxable value × GST rate) ÷ 100
Example: Taxable value is ₹50,000 and the GST rate is 18%.
GST = (50,000 × 18) ÷ 100 = ₹9,000
Total invoice value = ₹50,000 + ₹9,000 = ₹59,000
When the price already includes GST (inclusive)
This applies when you quote a GST-inclusive price and need to back-calculate the tax component.
GST Amount = (GST-Inclusive Price × GST Rate) ÷ (100 + GST Rate)
Example: The GST-inclusive price is ₹59,000 and the GST rate is 18%.
GST Amount = (59,000 × 18) ÷ 118 = ₹9,000
Taxable Value = 59,000 − 9,000 = ₹50,000
How to calculate the net GST payable after ITC
Output tax liability represents the total GST collected on taxable supplies. The final GST payable is determined after adjusting this liability against the eligible ITC available to the business.
Net GST payable = Output tax liability – Eligible ITC
Example: Your output tax in a month is ₹40,000 (CGST ₹20,000 + SGST ₹20,000), and your eligible ITC on purchases is ₹15,000.
Net GST payable = 40,000 – 15,000 = ₹25,000
If your ITC exceeds your output tax liability in a given period, the excess is carried forward to the next month. Refunds are available in specific circumstances, such as exports or inverted duty structures.
How the GST amount splits between CGST, SGST and IGST
Once you have the total GST amount, you need to apply it correctly based on the type of supply.
|
Supply type |
Applicable tax |
Split |
|
Intra-state (within same state) |
CGST + SGST |
Half each (e.g., 9% CGST + 9% SGST for an 18% rate) |
|
Inter-state (across states) |
IGST |
Full rate (e.g., 18% IGST) |
|
Imports |
IGST + Customs duty |
IGST at the applicable rate on assessable value + customs duty |
What are the common mistakes in GST calculation?
Even with the correct formula, errors can happen. The following are the ones that appear most frequently.
- Applying GST to the wrong value: GST must be charged on the transaction value, which includes freight, packing charges and any other amounts the supplier charges to the buyer, unless they are separately contracted. Discounts given at the time of supply and clearly stated on the invoice can be excluded.
- Claiming ITC on ineligible inputs: Not all purchases carry claimable ITC. For instance, according to Section 17(5), businesses cannot claim ITC on Motor vehicles (with exceptions), food and beverages, etc. Claiming ITC on these leads to demand notices from the tax authority.
- Using an outdated GST rate: Verify the applicable GST rate before raising invoices or filing returns. GST rates can change through GST Council notifications, and relying on an outdated rate may result in incorrect tax calculations.
Step-by-step example from start to finish
A manufacturer in Maharashtra sells goods to a buyer in Maharashtra. The taxable value of the goods (as per the invoice) is ₹1,20,000. The GST rate applicable to these goods is 12%.
- GST amount = (1,20,000 × 12) ÷ 100 = ₹14,400
- Since supply is intra-state: CGST = ₹7,200 (6%), SGST = ₹7,200 (6%)
- Total invoice value = ₹1,20,000 + ₹14,400 = ₹1,34,400
During the same month, the manufacturer has an eligible ITC of ₹8,000 (CGST ₹4,000 + SGST ₹4,000) on raw material purchases.
Net CGST payable = 7,200 – 4,000 = ₹3,200
Net SGST payable = 7,200 – 4,000 = ₹3,200
Total GST remitted = ₹6,400
Conclusion
Understanding how GST payable is calculated is essential for maintaining accurate tax records and meeting compliance requirements. The key is to apply the correct formula based on whether the transaction value is GST-inclusive or GST-exclusive and to account for eligible ITC correctly.
As businesses handle larger transaction volumes, using software that automates GST calculations and tax reporting can improve accuracy and reduce manual effort. TallyPrime helps streamline these processes, making GST management simpler and more efficient.
