Tax calculation on an invoice with examples

All businesses registered under GST are required to issue GST compliant invoices to their buyers. It evidences a valid sale transaction.

What are tax laws applicable for invoicing?

An invoice is sent to the buyer by the seller of goods or services. It contains a list of goods sold, quantity, rate, taxable value, etc. There are various tax laws applicable to invoicing-

• GST – The GST law requires all the registered sellers to issue GST invoices to their customers. The main purpose of GST compliant invoices is to charge tax and pass on the input tax credit to its customers. It should have certain mandatory details such as GSTIN of both the seller and the buyer, date and place of supply, HSN/SAC code, tax rate, taxable value, whether RCM is applicable, and signature of the supplier. 
• Customs – Customs duty is calculated on the assessable value of goods landed on the customs border of India. 
• TDS under section 194Q – It applies from 1st July 2021 to a buyer whose turnover during the immediately preceding financial year exceeds Rs.10 crore and makes a purchase or payment of aggregate value exceeding Rs.50 lakh during the financial year. TDS is applicable at 0.1%, but if PAN is not provided, then at 5%. TDS is applicable on the net amount mentioned in the invoice, excluding GST.

Importance of raising accurate tax invoice

An invoice is a very important document. It not only evidences a sale transaction but is also essential for a buyer to claim an input tax credit. A registered person can claim ITC only if he has a tax invoice. Thus, it is essential to mention accurate details on a tax invoice.

Invoice is an important indicator of the time of supply. GST is charged at the time of supply. Under GST, the time of supply is the date of invoice or receipt of payment, whichever is earlier. This makes accurate invoicing very essential.

What is an assessable value under different tax laws?

Assessable value is the value that is used for the calculation of tax. 

Under Customs Act, assessable value includes the cost of goods sold, transportation cost up to the location of the buyer and insurance. In the case of imports, the assessable value is calculated by adding 1% to the CIF value of imports. For example,

FOB value- $1,000

Freight- $200

Insurance- $13

CIF value- $1,213

Convert this CIF amount to local currency by using frequent notifications from the customs department. Now, add 1% to this converted amount to get the assessable value for calculating customs duty.

Assessable value under GST- Under GST, a tax rate is applied to the transaction value. For example if goods are sold for Rs.1,000, GST = Rs.1,000*18% which is Rs.18. This is divided into CGST and SGST of Rs.9 each. 

Differential taxation under GST- Different GST rates apply to different categories of goods sold or services provided. For example, different GST rates apply to different types of cars. GST at 18% is applicable on hatchbacks with cess at 1%, whereas Sedan and SUV are charged at 28% with GST cess of 15%.

1. A Maruti Swift is sold for Rs.6 lakh. Then, GST= Rs.6,00,000*18% +cess at 1% = Rs.1,14,000.
2. A Hyundai Verna is sold for Rs.15,00,000. The, GST = Rs.15,00,000*28% + cess at 15% = Rs.6,45,000.

How to calculate GST in the invoice?

All registered persons must pay the difference of GST on sales and GST on purchases done in a month. GST is calculated by multiplying the taxable value with the GST rate.

GST= Taxable value (X) GST rate

If the amount already includes GST then you can calculate as,

Total amount including GST= Rs.500, GST rate= 5%

GST excluding amount = Rs.500/(1+5/100)= Rs.500

It is calculated on transaction value and not on MRP.