GST rate on readymade garments when purchase price was 2200 and selling rate is 3000

[BIJO SCARIA]

Hello,

From 22nd September, readymade garments valued less than Rs. 2,500 attract GST at 5%, and garments valued above Rs. 2,500 attract GST at 18%.

I have two doubts regarding this:

1. For the threshold value of Rs. 2,500, should this be considered inclusive of tax or exclusive of tax while determining the applicable GST rate?

2. If garments are purchased from a wholesaler at less than Rs. 2,500 (thus taxed at 5%), but later sold at more than Rs. 2,500, what GST rate should be charged at the time of retail sale?

[Sadanand Bulbule]

1. Threshold value of ?2,500 – inclusive or exclusive of tax? 

Under GST, the rate of tax depends on the transaction value before tax (i.e., taxable value / assessable value). 

Section 15 of the CGST Act defines value of supply as the price actually paid or payable excluding GST.  Hence, the threshold of Rs. 2,500 is to be seen exclusive of GST. 

 Example:  If the MRP (before GST) is Rs. 2,400 ? GST @ 5% applies.  If the MRP (before GST) is Rs. 2,600 ? GST @ 18% applies.  You do not add GST first and then check the threshold.

2. Rate applicable at the time of resale (retail sale)

GST is levied on the value of supply at the time of each transaction. •What matters is the sale price at which you sell, not the rate paid earlier. 

So:  If wholesaler sells at Rs. 2,400 ? wholesaler charges 5%.  If retailer later sells the same garment at Rs. 2,600 ? retailer must charge 18%, because the supply value now exceeds Rs. 2,500.  

The rate of tax does not depend on purchase price, but on the price at which you supply via tax invoice.

[KALLESHAMURTHY MURTHY K.N.]

The threshold limit of Rs. 2500 is exclusive of the tax element.  You must collect tax on the goods sold for Rs. 2500 @5%. The tax on sale price depends on the slab rates, i.e.,  up to 5%  up to Rs. 2500-00, and 18%  for exceeding  Rs. 2500-00.

 This is my view, not to be considered as a legal opinion.

[Shilpi Jain]

2500- is without tax.

For sale > Rs. 2500 - 18% GST will have to be applied irrespective of the fact that your purchase has been @ 5%

AI Summary

GST threshold exclusive of tax: applicable rate is set by taxable sale price, not by purchase price. The GST rate for readymade garments is determined by the taxable value of each supply exclusive of GST under Section 15. The rate applicable at retail is set by the retailer's sale price on the tax invoice; a higher retail pre-tax price attracts the higher slab regardless of the price or tax rate applicable to the earlier wholesale purchase.