Understanding Sales Tax (ST), Value Added Tax (VAT), and Goods & Services Tax (GST) with Formulas

🔹 What is Sales Tax (ST)?

Sales Tax is a tax imposed by the government on the sale of goods. It is calculated on the Selling Price (SP) and is paid by the customer.

📌 Formula for Sales Tax:

“Sales Tax = (Tax % / 100) x Selling Price“

✅ Total Price Paid by Customer:

Final Price=Selling Price+Sales Tax Value

📌 Example:
A washing machine is sold for ₹10,000 with a 10% sales tax.

Step 1: Find Sales Tax

Sales Tax=10100×10000=1000

Step 2: Find Final Price

Final Price=10000+1000=₹11,000

✅ The customer pays ₹11,000 in total.

🔹 What is Value Added Tax (VAT)?

VAT is a tax collected at each stage of production and sale of goods. It is charged on the selling price but the business can deduct the tax already paid on inputs (purchases).

📌 Formula for VAT:

Amount after tax = Net Amount + (Net amount x n)

Amount before tax = Tax inclusive price – (Tax inclusive price x 100/Tax rate + 100)

Where,

• Net amount = Amount before Tax inclusion
• n = Tax rate
• Tax inclusive price = Amount including tax

📌 Example:
A shop sells a mobile phone for ₹15,000 with a 12% VAT.

Amount after tax = 15,000 +(15,000× 12%)

                            15,000 +  (15,000× 12100)

                            15,000 + 1800

                            16,800

✅ The customer pays ₹16,800 (₹15,000 + ₹1,800 VAT).

🔹 What is Goods and Services Tax (GST)?

GST is a single tax that replaced Sales Tax and VAT. It applies to both goods and services and is divided into:

• CGST (Central GST) → Goes to the Central Government
• SGST (State GST) → Goes to the State Government
• IGST (Integrated GST) → Applied on interstate transactions

📌 Formula for GST:

Amount after tax = Net Amount + (Net amount x n)

Amount before tax = Tax inclusive price – (Tax inclusive price x 100/Tax rate + 100)

Where,

• Net amount = Amount before Tax inclusion
• n = Tax rate
• Tax inclusive price = Amount including tax

✅ Total Price Paid by Customer:

Final Price=Selling Price+GST tex

📌 Example:
A laptop costs ₹40,000 with 18% GST.

Amount after tax = Net Amount + (Net amount x n)

 =40,000 + (40,000× 18100)

=40000 + 7200

=47200

✅ Total Price Paid by Customer:

40000+7200=₹47,200

🔹 If purchased within the same state: GST is divided into CGST 9% + SGST 9%.
🔹 If purchased from another state: Full 18% IGST is applied.