CA Foundation · Business Economics · Public Finance
Rohan buys a packet of biscuits whose price is Rs 100 before tax. GST is levied at 18% on the pre-tax price. Under the standard classification of taxes, GST on this sale is best described as which of the following, and what is the total price Rohan pays?
GST is an indirect tax because its burden is shifted from the seller to the final consumer. Rohan pays the pre-tax price of Rs 100 plus 18% tax of Rs 18, so the total is Rs 118.
- AA direct tax; Rs 118
- BAn indirect tax; Rs 118Correct
- CAn indirect tax; Rs 82
- DA direct tax; Rs 100
Explanation
GST is charged on goods and services and the burden can be shifted to the final consumer, so it is an indirect tax. Price paid = 100 + 18% of 100 = 100 + 18 = Rs 118. Rs 82 results from wrongly subtracting the tax, and calling it direct ignores that the tax burden is passed on.
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