GST, VAT and Sales Tax: Adding and Removing Tax Correctly
Whether it's called GST, VAT or sales tax, the idea is the same: a percentage is added to the price of goods and services. Businesses need to add it to invoices, and both businesses and buyers often need to work out how much tax is hidden inside a price that already includes it.
Adding tax to a price
If you know the price before tax, multiply it by the rate to get the tax, then add the two together:
Tax = Net price × Rate ÷ 100 and Gross price = Net price + Tax.
For example, 1,000 at 18% gives a tax of 180 and a total of 1,180.
Removing tax from a price (reverse calculation)
This is where many people go wrong. To find the net price from a tax-inclusive price, you can't simply subtract 18%. Instead, divide by (1 + rate):
Net price = Gross price ÷ (1 + Rate ÷ 100).
So 1,180 including 18% tax has a net price of 1,000, not 967.60. Select "Remove tax" in the calculator to do this automatically.
Split tax between two authorities
In some systems, tax on a sale is divided between two authorities. In India, for example, intra-state sales split GST equally into CGST and SGST. The calculator shows this equal split for convenience.
Tips for small businesses
- Check the correct rate for each product or service; rates often vary by category.
- Show the net amount, tax and total clearly on every invoice.
- Keep records of tax you pay on purchases, as many systems let you claim it back as input credit.
- Confirm registration thresholds and filing deadlines with your tax authority.