GST Inclusive vs Exclusive: Meaning, Formula, Examples, and Practical Guide

 

Definition of GST Inclusive vs Exclusive

GST Inclusive means that the price quoted already includes the Goods and Services Tax (GST). The customer pays the final amount without any extra tax addition at checkout.

GST Exclusive means the price quoted does not include GST. The tax will be added separately at the applicable rate, and the customer pays more than the base amount.

Detailed Meaning

In business, pricing transparency is crucial. Whether a price is GST Inclusive or GST Exclusive affects how the customer perceives the cost and how businesses record sales.

• If a product is ₹1,000 GST Inclusive at 18%, the GST is already embedded in that amount.

• If the same product is ₹1,000 GST Exclusive at 18%, the customer will pay ₹1,180 total (₹1,000 + ₹180 GST).

For businesses, this impacts invoicing, accounting, and customer communication.

Breaking Down the Concept

GST Inclusive Price

• The displayed price already contains GST.

• Customer sees a round figure.

• Useful in retail and consumer-focused industries.

GST Exclusive Price

• The displayed price is before GST.

• Tax is added during billing.

• Common in B2B transactions where businesses claim input tax credit (ITC).

Formula for GST Inclusive and Exclusive

GST Exclusive Price to Inclusive Price:

$$\text{Inclusive Price} = \text{Exclusive Price} + \left( \text{Exclusive Price} \times \frac{GST\%}{100} \right)$$

GST Inclusive Price to Exclusive Price:

$$\text{Exclusive Price} = \frac{\text{Inclusive Price} \times 100}{100 + GST\%}$$

GST Amount:

$$\text{GST Amount} = \text{Inclusive Price} - \text{Exclusive Price}$$

Example Calculation

Example 1: Converting Exclusive to Inclusive

• Base Price (Exclusive): ₹10,000

• GST Rate: 18%

• GST Amount = ₹10,000 × 18% = ₹1,800

• Inclusive Price = ₹10,000 + ₹1,800 = ₹11,800

Example 2: Converting Inclusive to Exclusive

• Inclusive Price: ₹11,800

• GST Rate: 18%

• Exclusive Price = (11,800 × 100) / 118 = ₹10,000

• GST Amount = ₹11,800 – ₹10,000 = ₹1,800

Journal Entry in Accounting

When a business sells goods (exclusive of GST):

At the time of sale (Exclusive Method):

Debtor A/c Dr.              ₹11,800  
     To Sales A/c           ₹10,000  
     To Output GST A/c      ₹1,800  

At the time of sale (Inclusive Method):

Debtor A/c Dr.              ₹11,800  
     To Sales A/c           ₹11,800  

(Later adjustment is made by separating GST for return filing).

Detailed Illustration

Case: A company sells goods worth ₹1,00,000 with GST @ 18%.

• GST Exclusive Method:
  Sales = ₹1,00,000
  GST = ₹18,000
  Invoice = ₹1,18,000

• GST Inclusive Method:
  Invoice = ₹1,18,000 (fixed round figure)
  Sales = (₹1,18,000 × 100) / 118 = ₹1,00,000
  GST = ₹18,000

In both cases, the net effect is the same, but presentation differs.

Key Features

• Transparency: Inclusive is customer-friendly, Exclusive is business-friendly.

• Calculation: Inclusive requires back-calculation for GST reporting.

• Applicability: Retailers prefer Inclusive, wholesalers prefer Exclusive.

• Accounting Impact: Journal entries differ slightly.

Importance in Business

• Compliance: Correct invoicing under GST law is mandatory.

• Customer Trust: Clear pricing builds transparency.

• Cash Flow: Impacts how businesses recover and pay taxes.

• Input Tax Credit (ITC): Only GST-exclusive pricing clearly shows tax for credit.

Advantages and Disadvantages

GST Inclusive
✅ Easy for consumers to understand.
✅ Attractive round pricing (₹99, ₹199, etc.).
❌ Difficult for accounting and ITC segregation.
❌ May confuse customers about actual tax paid.

GST Exclusive
✅ Clear tax component shown.
✅ Easy for B2B invoices (ITC claim).
❌ Final bill may shock retail customers.
❌ Looks higher compared to inclusive prices.

Usage

• Inclusive Pricing: Malls, restaurants, retail shops, e-commerce.

• Exclusive Pricing: Wholesalers, manufacturers, exporters, B2B suppliers.

Case Study

McDonald’s India:
Menu prices are generally GST Inclusive. If a burger is ₹120 inclusive of 5% GST, the company back-calculates GST for filing.

Automobile Dealers:
Cars are sold on GST Exclusive pricing. The price tag says “Ex-Showroom Price” + GST, road tax, insurance.

Table Example

Price Basis	Base Price	GST (18%)	Final Price
GST Inclusive	₹11,800	₹1,800	₹11,800
GST Exclusive	₹10,000	₹1,800	₹11,800

Practical Example

A small retailer sells a product at ₹500 inclusive of 12% GST.

• Exclusive Price = (500 × 100) / 112 = ₹446.43

• GST = 500 – 446.43 = ₹53.57

Common Mistakes

• Treating inclusive price as exclusive while filing returns.

• Misreporting GST amount in invoices.

• Quoting “tax extra” in retail without informing the customer.

• Businesses forgetting to adjust inclusive prices when GST rates change.

Real-Life Applications

• Legal Requirement: GST invoice must show tax component separately (except retail invoices below ₹200).

• Retail: Inclusive pricing improves customer experience.

• Corporate: Exclusive pricing makes ITC easy.

• Government: Helps in transparent tax collection and compliance.

FAQs

Q1. Which is better: GST Inclusive or Exclusive?
It depends. Inclusive is customer-friendly, Exclusive is business-friendly and ITC-compliant.

Q2. Can I issue an inclusive invoice under GST law?
Yes, but you must show GST bifurcation when required.

Q3. Why do e-commerce platforms prefer inclusive pricing?
Because customers dislike “hidden charges” at checkout.

Q4. How do I calculate GST from an inclusive price?
Use the formula: Exclusive = (Inclusive × 100) / (100 + GST%).

Expert Tip from Learn with Manika

“Always mention clearly in your invoices whether your prices are GST Inclusive or Exclusive. It avoids customer disputes, ensures compliance, and makes GST return filing accurate.”

Related Terms

• Input Tax Credit (ITC)
• GST Output Tax
• Tax Invoice
• Value Added Tax (VAT)
• Ex-Showroom Price
• Retail Price (MRP)