Question

A wholesaler A sells a machine to a retailer B for ₹ 5000 and the retailer B sells it to a consumer at a profit of ₹ 1000. If the GST rate is 12%, calculate the tax liability of the retailer B.

Answer 1

Given:

Wholesaler’s sale price to retailer (cost to B) = ₹ 5,000

Retailer’s profit = ₹ 1,000

GST rate = 12%

Step-wise calculation:

1. Selling price (retailer consumer)

= ₹ 5,000 + ₹ 1,000 

= ₹ 6,000

2. Input tax (GST on retailer’s purchase)

= 12% of ₹ 5,000 

= 0.12 × 5,000

= ₹ 600

3. Output tax (GST on retailer’s sale) 

= 12% of ₹ 6,000 

= 0.12 × 6,000

= ₹ 720

4. Tax liability of retailer

= Output tax – Input tax 

= ₹ 720 – ₹ 600

= ₹ 120

Alternatively, GST charged on value addition

= 12% of profit 

= 0.12 × ₹ 1,000

= ₹ 120

Tax liability of retailer B = ₹ 120.