Question

A retailer buys a TV from a wholesaler for ₹20,000 and sells it to a consumer at a 10% profit. If the GST rate is 18%, calculate the total tax paid by the retailer to the Government.

Hint:

In GST, tax is paid only on value addition: Net GST = Output GST − Input GST (ITC).

Answer 1

Concept: Under the GST system, a dealer pays tax only on the value added. \[ \text{Tax payable} = \text{Output GST} - \text{Input GST (ITC)} \]
Step 1: Purchase price and Input GST. Retailer buys TV for ₹20,000. GST @ 18%: \[ \text{Input GST} = 18% \text{ of } 20000 = 0.18 \times 20000 = ₹3600 \]
Step 2: Selling price before GST. Profit = 10% of 20,000 = ₹2,000 \[ \text{Selling price (before GST)} = 20000 + 2000 = ₹22000 \]
Step 3: Output GST on sale. GST @ 18% on ₹22,000: \[ \text{Output GST} = 0.18 \times 22000 = ₹3960 \]
Step 4: GST payable to Government. \[ \text{Net GST} = \text{Output GST} - \text{Input GST} \] \[ = 3960 - 3600 = ₹360 \]
Conclusion: The retailer pays only the tax on value addition, which is ₹360.