GST Formula Explained
You’ve got an invoice showing ₹11,800 total, and you need to know: how much is the actual price vs. tax?
Here’s the thing – you can’t just subtract 18% from the total. Let me show you why, and give you the exact formulas that always work.
Quick Reference: All GST Formulas
Before we dive into the details, here’s a quick reference for those in a hurry:
| What You Want | Formula | Example (18% GST) |
|---|---|---|
| Add GST to price | Total = Base × 1.18 | ₹10,000 → ₹11,800 |
| Find GST amount | GST = Base × 0.18 | ₹10,000 → ₹1,800 |
| Remove GST from total | Base = Total ÷ 1.18 | ₹11,800 → ₹10,000 |
| Extract GST from total | GST = Total - (Total ÷ 1.18) | ₹11,800 → ₹1,800 |
Now let’s understand why these formulas work.
What is GST and How Does It Work?
GST (Goods and Services Tax) is an indirect tax charged on the supply of goods and services. In India, GST replaced multiple taxes (VAT, Service Tax, Excise Duty) with a unified system.
Key terms you need to know:
- Base Price (Exclusive Price): The original price before tax
- GST Amount: The tax calculated on the base price
- Total Price (Inclusive Price): Base price + GST amount
India’s GST Rate Slabs:
| Rate | Applied To |
|---|---|
| 0% | Essential items (fresh food, healthcare) |
| 5% | Mass consumption items |
| 12% | Standard goods |
| 18% | Most goods and services |
| 28% | Luxury items, automobiles, tobacco |
Most business transactions use 18% GST, which is what we’ll use in our examples.
Formula 1: How to Add GST to a Price
This is the most common calculation – you have a base price and want to find the total including GST.
The Formula
GST Amount = Base Price × (Rate ÷ 100)
Total Price = Base Price + GST Amount
Or simplified into one step:
Total Price = Base Price × (1 + Rate ÷ 100)
Step-by-Step Example
Problem: Calculate the total price for an item costing ₹10,000 with 18% GST.
Step 1: Convert percentage to decimal
18% = 18 ÷ 100 = 0.18Step 2: Calculate GST amount
GST = ₹10,000 × 0.18 = ₹1,800Step 3: Add to get total
Total = ₹10,000 + ₹1,800 = ₹11,800Or in one step:
Total = ₹10,000 × 1.18 = ₹11,800Formula 2: How to Remove GST from Total Price
This is where most people make mistakes. You have a total price (GST included) and need to find the original base price.
The Common Mistake
✗ Wrong Approach
₹11,800 - 18% = ₹11,800 - ₹2,124
= ₹9,676 ❌
✓ Correct Approach
₹11,800 ÷ 1.18
= ₹10,000 ✓
Why doesn’t subtraction work?
The 18% GST was calculated on ₹10,000 (the base), not on ₹11,800 (the total). When you subtract 18% from ₹11,800, you’re calculating 18% of the wrong number!
The Correct Formula
Base Price = Total Price ÷ (1 + Rate ÷ 100)
GST Amount = Total Price - Base Price
Step-by-Step Example
Problem: Find the base price and GST from a total of ₹11,800 at 18% GST.
Step 1: Calculate the divisor
1 + (18 ÷ 100) = 1 + 0.18 = 1.18Step 2: Divide to get base price
Base = ₹11,800 ÷ 1.18 = ₹10,000Step 3: Subtract to get GST amount
GST = ₹11,800 - ₹10,000 = ₹1,800Why This Formula Works (The Algebra)
Let’s prove it. If:
Total = Base × 1.18Then:
Base = Total ÷ 1.18It’s just rearranging the equation!
Converting Between Inclusive and Exclusive Prices
Sometimes you need to convert prices between “inclusive” (tax included) and “exclusive” (tax not included) formats.
Terminology
| Term | Meaning | Example |
|---|---|---|
| GST Exclusive | Price before tax | ₹10,000 (you’ll pay ₹11,800) |
| GST Inclusive | Price after tax | ₹11,800 (includes ₹1,800 tax) |
Conversion Formulas
Exclusive → Inclusive:
Inclusive = Exclusive × (1 + Rate ÷ 100)
Inclusive → Exclusive:
Exclusive = Inclusive ÷ (1 + Rate ÷ 100)
When to Use Each
- Exclusive pricing is common in B2B transactions (businesses claim input tax credit)
- Inclusive pricing is required for B2C retail (MRP must include GST)
GST Formula Cheat Sheet
Here’s a printable summary of all the formulas:
| Scenario | Formula | For 18% GST |
|---|---|---|
| Calculate GST from base price | GST = Base × (Rate/100) | GST = Base × 0.18 |
| Calculate total from base price | Total = Base × (1 + Rate/100) | Total = Base × 1.18 |
| Calculate base from total | Base = Total ÷ (1 + Rate/100) | Base = Total ÷ 1.18 |
| Calculate GST from total | GST = Total - Base | GST = Total - (Total ÷ 1.18) |
| Exclusive to Inclusive | Inclusive = Exclusive × (1 + Rate/100) | Inclusive = Exclusive × 1.18 |
| Inclusive to Exclusive | Exclusive = Inclusive ÷ (1 + Rate/100) | Exclusive = Inclusive ÷ 1.18 |
Pro tip: For different GST rates, just change 1.18 to:
- 5% → 1.05
- 12% → 1.12
- 28% → 1.28
Common Mistakes to Avoid
Mistake 1: Subtracting percentage from total
✗ Wrong
₹11,800 - 18% = ₹9,676
✓ Correct
₹11,800 ÷ 1.18 = ₹10,000
Mistake 2: Confusing 18% with 0.18 vs 1.18
- Use 0.18 when calculating the GST amount:
GST = Base × 0.18 - Use 1.18 when calculating the total:
Total = Base × 1.18
Mistake 3: Adding GST to an already inclusive price
If a price is marked as “inclusive of GST,” don’t add GST again! Check the invoice or MRP label carefully.
Practice Problems
Test your understanding with these practice problems:
Problem 1: A laptop costs ₹50,000 (exclusive). Calculate the total with
18% GST.
Solution:
Total = ₹50,000 × 1.18 = ₹59,000
GST Amount = ₹50,000 × 0.18 = ₹9,000
Problem 2: An invoice shows ₹23,600 (inclusive of 18% GST). Find the
base price.
Solution:
Base = ₹23,600 ÷ 1.18 = ₹20,000
GST Amount = ₹23,600 - ₹20,000 = ₹3,600
Problem 3: A restaurant bill is ₹1,500 with 5% GST. What’s the total?
Solution:
Total = ₹1,500 × 1.05 = ₹1,575
GST Amount = ₹1,500 × 0.05 = ₹75
Problem 4: A car part costs ₹12,800 inclusive of 28% GST. Find the base
price.
Solution:
Base = ₹12,800 ÷ 1.28 = ₹10,000
GST Amount = ₹12,800 - ₹10,000 = ₹2,800
Related Tools
Frequently Asked Questions
Frequently Asked Questions
What is the basic GST formula?
The basic formula for calculating GST is: GST Amount = Base Price × (GST Rate / 100). For example, for an item priced at ₹10,000 with 18% GST, the GST amount is ₹10,000 × 0.18 = ₹1,800.
How do I calculate GST from total amount?
To extract GST from a total (inclusive) price, use: Base Price = Total / (1 + Rate/100). For ₹11,800 at 18%, Base = ₹11,800 / 1.18 = ₹10,000, so GST = ₹1,800.
Why can't I just subtract the percentage from the total?
Because the GST was calculated on the base price, not the total. If you subtract 18% from ₹11,800, you get ₹9,676 – which is wrong. The correct base price is ₹10,000.
What is the difference between GST inclusive and exclusive?
GST inclusive means the price already contains GST. GST exclusive means GST will be added on top. For example, '₹11,800 inclusive' means ₹10,000 + ₹1,800 GST. '₹10,000 exclusive' means you'll pay ₹11,800 total.
How do I convert between inclusive and exclusive prices?
To convert inclusive to exclusive: divide by (1 + rate/100). To convert exclusive to inclusive: multiply by (1 + rate/100).
What are the GST rates in India?
India has four main GST slabs: 5% (essential items), 12% (standard goods), 18% (most goods and services), and 28% (luxury and sin goods). Some items are exempt (0%).