## Introduction to Goods and Services Tax (GST)
Goods and Services Tax (GST) is a destination-based consumption tax levied on the supply of goods and services. For business owners, freelancers, accountants, and consumers, calculating the exact tax component is an everyday necessity.
Exclusive GST vs Inclusive GST
The two fundamental modes of tax calculation are:
1. GST Exclusive (Tax Added on Top)
In an exclusive transaction, the quoted price is the net base price. Tax is added on top to determine the gross invoice total.
- **Formula**:
- `GST Amount = Base Price × (GST Rate ÷ 100)`
- `Total Invoice Price = Base Price + GST Amount`
- **Example**: If a software consulting service costs ₹10,000 with 18% GST:
- `GST Amount = 10,000 × 0.18 = ₹1,800`
- `Gross Total = 10,000 + 1,800 = ₹11,800`
2. GST Inclusive (Tax Extracted from Price)
In an inclusive transaction, the sticker price already contains the tax amount (standard for retail consumer goods and restaurant bills).
- **Formula**:
- `Net Base Price = (Inclusive Price × 100) ÷ (100 + GST Rate)`
- `GST Amount = Inclusive Price - Net Base Price`
- **Example**: If a retail product costs ₹11,800 inclusive of 18% GST:
- `Net Base = (11,800 × 100) ÷ 118 = ₹10,000`
- `GST Amount = 11,800 - 10,000 = ₹1,800`
CGST, SGST, and IGST: How Taxes are Split
In dual-structure jurisdictions like India:
- **Intra-State Transaction**: When buyer and seller reside in the same state, GST is split equally between **Central GST (CGST)** (50%) and **State GST (SGST)** (50%).
- **Inter-State Transaction**: When buyer and seller reside in different states, **Integrated GST (IGST)** (100%) applies.