Under the GST, how would you bill a garment with an MRP inclusive tax of 1060?

Extremely tricky question!

Let’s understand the law before analyzing this boomerang.

GST rates on garments (apparels,clothing) are as follows:

If sale value is upto Rs. 1,000 per piece - GST 5%

If sale value exceeds Rs. 1,000 per piece - GST 12%

Your question mentions MRP of Rs. 1,060 inclusive of taxes.

Wherever sales value includes taxes, we need to arrive at base value i.e. pre-tax value to show it in invoice and also to discharge the tax liability.

Now the draconian part appears.

We try to breakup the MRP into pre-tax value+taxes as per both the rates:

1.) Base value @12% = 1060/(100+12)*100 = 946.50

Tax @12% = 946.50*12% = 113.50

Total = 946.50 + 113.50 = 1,060

Since base value comes out to be less than 1,000 applicable rate can’t be 12%. Has to be 5%. But if we do that and apply 5%, then MRP will come down to Rs. 993.7 (946.5+47.3)

2.) Base value @5% = 1060/(100+5)*100 = 1009.50

Tax @5% = 1009.50*5% = 50.50

Total = 1009.50 + 50.50 = 1,060

Since base value comes out to be more than 1,000 applicable rate can’t be 5%. Has to be 12%. But if we do that and apply 12%, then MRP will shoot up to 1,130.7 (1009.5+121.2).

Here, you need to take a business decision and do some jugglery.

If you want to keep your MRP intact, maybe some discount (that too post-supply because pre-supply discount will bring down the base value thus leading to a lower MRP) needs to be factored-in so as to bring the MRP close to 1,060.

Note - Discounts have their own implications under GST involving reversal of input tax credit to the extent of discount given after supply. To have a detailed analysis of discounts, leave a comment in comments section if you wish to know further.

So, as such you may consider revising your MRP and benefitting your consumers :) as below:

1.) Base value = 1000

GST @5% = 50

MRP = 1,050 (Let new customers be attracted on your reduced MRP and give a boost to your overall sales :))

2.) Base value = 1001

GST @12% = 120

MRP = 1,121 (Not at all a right practice to adopt unless and until you can justify increased cost of production.)

Could not think of a matter-of-fact answer to this question and hence tried to give you all possible scenarios!

Thanks