GST on MRP – Meaning, Rules & Calculation

Introduction

GST reform has been quite revolutionary in nature in India as it simplifies the indirect taxation system by grouping all diverse central and state levies into a single form of tax. This tax will be applied to commodities and services along a whole supply chain right from manufacture to consumption, for instance, from manufacturer to retailer or consumer. Probably one of the most important words under GST is MRP which stands for Maximum Retail Price. It is, therefore, very important that businesses and customers understand how GST operates on MRP so that everything becomes clear.

In this article, we will try to understand what GST on MRP means, the rules surrounding it, and how one calculates GST on the sale of goods sold at MRP. For borrowers looking for unsecured business loan options this article will add value as many lenders seek GST returns before approving loan requests. Let us begin with some basics.

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GST on MRP – Meaning, Rules & Calculation

1. What is MRP?

MRP stands for Maximum Retail Price. It refers to the maximum amount of money a retailer can charge from any customer for any product. The amount includes all applicable taxes, such as GST, and has to be printed on the packaging of the product so that the consumer is aware of it. MRP is initiated so that consumers are not overcharged by retailers.

Under Indian law, manufacturers are statutorily under an obligation to mandatorily provide the MRP on packaged goods, and retailers, though not required to sell for the MRP, cannot charge extra over the same.

When one applies GST, it is well included in MRP. When a consumer buys a commodity at MRP, he has no need to pay GST separately. It forms part of the final selling price.

2. Meaning of GST on MRP

GST is added to the MRP, whereby the tax component has already been included in the maximum retail price printed on the product. Consequently, the consumer can see that a value-added tax is charged before buying the product.

For example, if the MRP of a commodity is ₹100 and its GST rate is 18%, then that very ₹100 includes the 18% GST. Extra taxes will not be levied on customers at cash counters.

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3. Rules about GST on MRP

There are rules established by the government regarding the application of GST towards MRP. Here are some important points that must be known:

• MRP Contains GST: According to law, MRP must contain all taxes that apply, including GST. The retailer cannot collect GST more than the printed MRP.

• Price Display Compliance: Manufacturers must print the right price on the product packaging. For that reason, the consumer is charged the correct and transparent amount.

• No Over-charging: Retailers cannot raise the price over and above the printed MRP even though GST has changeable rates.

• GST Rate Changes: If the government raises or lowers the GST rate, a manufacturer has to update the MRP on a new batch. For old stock, the business owner either updates the price label or sells the product at the old MRP with no extra GST.

• Input Tax Credit: Businesses in the supply chain can claim an input tax credit (ITC) on the GST paid during procurement. However, this does not affect the MRP for consumers.

4. Calculate GST on MRP

Calculation of GST as a component within the MRP is an area of concern both for businesses and consumers. One simple way of calculating the amount of GST charged is:

a) Step 1: MRP and GST Rate

Assume: MRP = ₹1,000

GST = 18%

b) Step 2: Apply Formula

GST = (MRP ÷ {100 + GST Rate}) × GST Rate

c) Step 3: Calculate

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

GST Amount = (₹1,000 ÷ 118) × 18

GST Amount = ₹8.47 × 18

GST Amount = ₹152.54

So, the GST amount added to the MRP of ₹1,000 is around ₹152.54. The balance amount is the base price of the product, which is ₹847.46.

d) Step 4: Check the Base Price

Base Price = MRP – GST Amount

Base Price = ₹1,000 – ₹152.54

                  = ₹847.46 will be the base price

This would calculate the GST part to be included in the MRP so that consumers are not overcharged.

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Conclusion

GST on MRP is a very significant feature of the tax system in India, as fair and transparent prices to consumers are given with the products. Consumer understanding of such rules and their calculations will result in the right decision, as well as remain compliant with all tax regulations on the business front. GST, MRP, and its protection not only protect the consumer but also make way for the efficient working of the Indian GST framework.

NBFCs are very significant in the Indian financial system. These organizations offer various services like secured & unsecured business loan, asset financing, investment management, etc. These institutions are highly important for lending to the unserved segments of the population like small businesses and rural areas where they offer various loan options with affordable business loan interest rate tailored to suit the needs of entrepreneurs. Although they do not lend or borrow directly under MRP or GST, they indirectly help the overall economy grow through financing businesses and consumption that drives demand for the goods and services, the demand for which is subject to GST.