Sales Tax, Value Added Tax, Goods and Services Tax

Sales Tax, Value Added Tax, Goods and Services Tax are types of taxes imposed on the products and services offered by the private businesses and government for public welfare expenditures. In the real-life you may have seen many bills that include taxes along with the price of a product or service. Collectively, the bill is generated based on the price and tax as the total amount to be paid by the individual.

In Mathematics, we will learn about all these taxes levied by the government such as Sales Tax, Value Added Tax, Goods and Services Tax and how to calculate them based on the sale of products or goods and services. It is one of the major concepts included in comparing quantities, that also include percentage increase and decrease,compound interest, etc.

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Sales Tax

Sales Tax (abbreviated as ST) is imposed by the government when a product is sold to the customer. The shopkeeper will collect this tax and pay it to the government. It is therefore charged on the selling price of the item and then later added to the bill.

  • Sales tax = Tax% of Bill Amount
  • Total Bill = Cost of the Item + Sales Tax

Let us see an example of sales tax.

Example: The cost of a pair of shoes at a shop was Rs. 450. The sales tax charged was 5%. What is the bill amount?

Solution: Cost of shoes = Rs.450

Sales tax charged on it = 5%

For Rs.100, the tax charged on it will be Rs.5

For Rs.1, tax charged = 5/100

For Rs.450, tax charged = 5/100 x 450 = Rs.22.50

Therefore, the total bill amount will be:

Bill = Cost + ST = 450 + 22.50 = Rs.472.50

Value Added Tax (VAT)

VAT or Value Added Tax is also a type of tax charged by the government for public welfare expenses. This tax is already included in the price of the product. At present, a percentage of VAT is imposed in almost all the products and services.

Let us see an example of value added tax.

Example: Harsh bought a mixer grinder for Rs. 3300 including a tax of 10%. What was the price of the mixer grinder before VAT was included?

Solution:

Given, Selling price of mixer grinder = Rs.3300

VAT included in the price = 10%

Let us understand first for Rs.100, in general.

For Rs.100, 10% VAT will be = 10

If we add the VAT to Rs.100, then the selling price becomes 100 + 10 = Rs.110

Therefore,

The price including tax is Rs 3300, the original price = 100/110 x 3300 = 3000

Hence, the price of mixer grinder before adding Value added tax was Rs.3000.

Goods and Services Tax (GST)

GST stands for Goods and Services Tax. GST is a new tax levied by the government since 1st July, 2017. This tax is charged on supply of goods or services or both.

Let us see an example of goods and services tax.

Example: Megha bought a magazine for Rs. 784 which included GST of 12% . What was the price of the magazine before GST was included?

Solution: Given,

GST = 12%

Suppose the actual price of magazine is Rs.100

So, 12% of 100 = Rs.12

On including GST of Rs.12 to Rs.100, the price of magazine = Rs.100 + Rs.12 = Rs.112

So, when the selling price is Rs.112 the actual price = Rs.100

For Rs.1, the actual price = Rs.100/112

For Rs. 784, the actual price = Rs.100/112 x 784 = Rs.700

Therefore, the original price of the magazine before GST was included was Rs.700.

Practice Questions

  1. Kavita paid Rs. 20 as VAT on a pair of shoes worth Rs. 250. Find the rate of VAT.
  2. Sandhya bought a saree for ₹ 5,400 including 8% VAT. Find the price before VAT was added.
  3. Aman got a 10% increase in his salary. If his new salary is Rs. 1,50,000, find his original salary.

Frequently Asked Questions on ST, VAT, GST

What is sales tax?

Sales tax (ST) is the tax charged by the government on the items sold by the shopkeepers. The tax is then paid by the shopkeeper to the government. Sales tax = Tax% of Bill Amount.

What is the full form of VAT and GST?

The full form of VAT and GST are Value added tax and Goods and services tax, respectively.

What is the difference between Sales tax and VAT?

Sales tax is not included in the price of the product but VAT is included in the selling price of the product.

What is the difference between VAT and GST?

VAT (Value added tax) is an indirect tax that is already included in the selling price. It is collected by the state government, which is then paid to the central government. GST (Goods and services tax) was introduced as a single and comprehensive taxation concept to remove the cascading effect of taxes. GST is imposed on all types of goods and services across the country.

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