How to Calculate GST: Formulas, Examples, and Reverse Calculation Guide

Why Understanding GST Calculation Matters for Your Business

I’ve seen business owners make costly mistakes with GST calculations. Incorrect tax amounts on invoices lead to compliance issues, and not understanding reverse calculation means you can’t verify if you’re being charged correctly.

Whether you’re creating invoices, verifying supplier bills, or just trying to understand how much tax you’re actually paying on purchases, knowing how to calculate GST is essential for every Indian business owner.

In this guide, I’ll walk you through the exact formulas for calculating GST, show you practical examples, and teach you how to extract GST from an inclusive price.

How to Calculate GST: The Basic Formula

The fundamental formula to calculate GST when you know the original price (before tax) is straightforward:

GST Amount = (Original Price × GST Rate) ÷ 100

Final Price = Original Price + GST Amount

Example 1: Calculating 18% GST on a Product

Let’s say you’re selling a product worth ₹1,000 with 18% GST:

GST Amount = (₹1,000 × 18) ÷ 100 = ₹180
Final Price = ₹1,000 + ₹180 = ₹1,180

Example 2: Calculating 5% GST on Food Items

You’re billing packaged food items worth ₹500 with 5% GST:

GST Amount = (₹500 × 5) ÷ 100 = ₹25
Final Price = ₹500 + ₹25 = ₹525

Example 3: Calculating 28% GST on Luxury Items

A customer buys a luxury item worth ₹10,000 attracting 28% GST:

GST Amount = (₹10,000 × 28) ÷ 100 = ₹2,800
Final Price = ₹10,000 + ₹2,800 = ₹12,800

CGST, SGST, and IGST: Which One Applies to You?

Before you calculate GST on your invoices, you need to understand the three components of GST and when each applies.

For Sales Within the Same State (Intra-State)

When both you and your customer are in the same state, you charge CGST and SGST equally.

The total GST rate gets split 50-50 between CGST (Central GST) and SGST (State GST).

Example: Selling goods worth ₹10,000 with 18% GST within Maharashtra:

Component	Rate	Amount
CGST	9%	₹900
SGST	9%	₹900
Total GST	18%	₹1,800
Invoice Total		₹11,800

For Sales to Other States (Inter-State)

When your customer is in a different state, you charge only IGST (Integrated GST) at the full rate.

Example: Selling goods worth ₹10,000 with 18% GST from Delhi to Mumbai:

Component	Rate	Amount
IGST	18%	₹1,800
Invoice Total		₹11,800

The tax amount remains the same, but how it’s structured on the invoice differs based on whether the transaction is intra-state or inter-state.

Price-Based GST Rate Thresholds: The ₹2,500 Rule for Garments

Here’s something many retailers don’t realize: some products have different GST rates based on their selling price. This is particularly important for the fashion and apparel industry.

Garment GST Rate Based on Price Per Piece

For textiles and apparel in India:

Selling Price Per Piece	GST Rate
Up to ₹2,500	5%
Above ₹2,500	18%

This means the same type of garment can attract different GST rates depending on its price. A cotton shirt priced at ₹2,400 will have 5% GST, while one priced at ₹2,600 will have 18% GST.

How Discounts Affect the GST Rate Threshold

This is crucial for retailers: GST is calculated on the transaction value (the actual amount paid), not on the MRP or original selling price.

Example 1: Price crosses threshold after discount

Selling Price: ₹2,800
Discount: ₹350 (12.5% off)
Final Transaction Value: ₹2,450
Applicable GST Rate: 5% (since final value is below ₹2,500)

Even though the selling price was ₹2,800, the customer pays only ₹2,450 after discount. GST is calculated on this discounted amount at 5%.

GST Amount = ₹2,450 × 5% = ₹122.50
Invoice Total = ₹2,450 + ₹122.50 = ₹2,572.50

Example 2: Price stays above threshold after discount

Selling Price: ₹3,000
Discount: ₹400
Final Transaction Value: ₹2,600
Applicable GST Rate: 18% (since final value exceeds ₹2,500)
GST Amount = ₹2,600 × 18% = ₹468
Invoice Total = ₹2,600 + ₹468 = ₹3,068

Why This Matters for Your Business

If you’re running a fashion retail store during a sale season:

Check the post-discount price for each item before applying GST
Your billing software should automatically recalculate the applicable rate based on the final transaction value
Be careful with flat discounts as they can push items into a lower GST bracket

This is one of the reasons why proper GST billing software is essential for apparel retailers. It automatically applies the correct rate based on the actual selling price after discounts.

How to Calculate GST from Inclusive Price (Reverse Calculation)

This is where many business owners get confused. When you see a price that already includes GST, how do you find out the original price and the tax component?

Don’t make this common mistake: Simply subtracting the GST percentage from the total gives you wrong numbers.

The Correct Reverse GST Calculation Formula

Original Price = Total Price (Inclusive) ÷ (1 + GST Rate/100)

GST Amount = Total Price - Original Price

Example 1: Extracting 18% GST from ₹11,800

You paid ₹11,800 for something with 18% GST. What was the original price?

Original Price = ₹11,800 ÷ (1 + 18/100)
Original Price = ₹11,800 ÷ 1.18
Original Price = ₹10,000
GST Amount = ₹11,800 - ₹10,000 = ₹1,800

Example 2: Extracting 5% GST from ₹525

You purchased packaged food for ₹525 with 5% GST included:

Original Price = ₹525 ÷ (1 + 5/100)
Original Price = ₹525 ÷ 1.05
Original Price = ₹500
GST Amount = ₹525 - ₹500 = ₹25

Example 3: Extracting 28% GST from ₹25,600

A luxury item cost ₹25,600 inclusive of 28% GST:

Original Price = ₹25,600 ÷ (1 + 28/100)
Original Price = ₹25,600 ÷ 1.28
Original Price = ₹20,000
GST Amount = ₹25,600 - ₹20,000 = ₹5,600

Quick Reference: Divisors for Common GST Rates

To save calculation time, here are the divisors for extracting GST from inclusive prices:

GST Rate	Divide Inclusive Price By
5%	1.05
12%	1.12
18%	1.18
28%	1.28

Want to skip the manual math? Use our free GST Calculator to instantly calculate GST amounts and extract tax from inclusive prices.

Current GST Rates in India

Understanding which GST rate applies to your products and services is crucial for correct calculations. Here’s a quick overview of the current GST structure:

0% GST (Nil Rated)

Essential items are exempt from GST:

Fresh milk, eggs, and curd
Unpackaged food grains (wheat, rice, atta, maida)
Fresh vegetables and fruits
Educational services and books
Life and health insurance policies

5% GST

Common goods and services at lower rates:

Packaged food items (biscuits, namkeen, pasta)
Hair oil, toothpaste, soap, shampoo
Tea, coffee, sugar, spices
Railway and economy air tickets
Footwear and apparel (below certain thresholds)

18% GST (Standard Rate)

The majority of goods and services fall here:

Electronics (mobile phones, computers, televisions)
Most consumer durables (AC, refrigerators, washing machines)
Small cars and motorcycles (up to 350cc)
Cement, batteries, and industrial goods
Telecom services, business class air travel, restaurants with alcohol

28% to 40% GST (Luxury and Sin Goods)

Higher rates for luxury items and products that attract additional cess:

Luxury cars and high-end motorcycles (above 350cc)
Tobacco products (pan masala, cigarettes, gutka)
Aerated drinks and sugary beverages
Five-star hotels, betting, gambling

Practical GST Calculation for Business Invoices

Let me walk through a realistic business scenario showing how to calculate GST on an invoice.

Sample Invoice Calculation

A clothing retailer in Kolkata sells to a customer in Kolkata:

Item	Quantity	Unit Price	Total
Cotton Shirt	3	₹800	₹2,400
Denim Jeans	2	₹1,500	₹3,000
Subtotal			₹5,400

GST on clothing (5% rate since both items are priced below ₹2,500 per piece):

Tax Component	Rate	Amount
CGST	2.5%	₹135
SGST	2.5%	₹135
Total GST	5%	₹270
Invoice Total		₹5,670

If the same sale was to a customer in Mumbai (inter-state):

Tax Component	Rate	Amount
IGST	5%	₹270
Invoice Total		₹5,670

Common GST Calculation Mistakes to Avoid

Mistake 1: Wrong Reverse Calculation

Wrong approach: Price is ₹1,180 with 18% GST. Someone calculates 18% of ₹1,180 = ₹212.40 as GST.

Why it’s wrong: This gives you 18% of the already-inflated price, not the actual GST paid.

Correct approach: ₹1,180 ÷ 1.18 = ₹1,000 (original price), GST = ₹180

Mistake 2: Applying Wrong Tax Type

Charging CGST + SGST on interstate sales (or IGST on local sales) leads to compliance issues and return filing problems.

Mistake 3: Not Updating for Rate Changes

GST rates have been revised multiple times since 2017. Always verify the current rate for your specific HSN/SAC code.

How Billing Software Simplifies GST Calculation

Manually calculating GST for every invoice becomes tedious and error-prone as your business grows. Modern billing software handles this automatically:

Applies correct GST rates based on HSN/SAC codes
Automatically determines CGST/SGST or IGST based on customer location
Generates compliant invoices with all required tax details
Prepares data for GST return filing

At Zubizi, we built GST billing software specifically for Indian retailers. The system handles all GST calculations automatically while you focus on serving customers.

Frequently Asked Questions

How do I calculate GST manually?

Multiply the original price by the GST rate, then divide by 100. For example, ₹1,000 × 18 ÷ 100 = ₹180 GST. Add this to the original price for the final amount: ₹1,000 + ₹180 = ₹1,180.

How to remove GST from a price that includes tax?

Divide the inclusive price by (1 + GST rate/100). For 18% GST on ₹1,180: ₹1,180 ÷ 1.18 = ₹1,000 original price. The GST amount is ₹180.

When to charge IGST vs CGST and SGST?

Charge IGST for inter-state sales (customer in a different state). Charge CGST + SGST equally for intra-state sales (customer in the same state). The total rate remains the same.

How to calculate GST on MRP?

MRP is typically inclusive of GST. Use the reverse calculation: Original Price = MRP ÷ (1 + GST Rate/100). For MRP ₹118 with 18% GST: ₹118 ÷ 1.18 = ₹100 base price.

Calculate GST Correctly Every Time

Understanding how to calculate GST - whether adding it to prices or extracting it from inclusive amounts - is fundamental for running a compliant business in India. The formulas are simple once you know them:

Adding GST: Original Price × (1 + Rate/100) = Final Price
Removing GST: Inclusive Price ÷ (1 + Rate/100) = Original Price

For businesses dealing with hundreds of invoices, consider using GST-compliant billing software that automates these calculations and ensures you never make errors on your tax invoices.

Need help setting up automated GST billing for your business? Contact us for a quick walkthrough.