Step-by-Step Calculation
Adding tax to a price (exclusive):
- Multiply the base price by the tax rate (as a decimal).
- Add that result to the base price.
Extracting tax from a price (inclusive):
- Divide the total price by (1 + tax rate).
- That gives you the net (pre-tax) amount — subtract it from the total to find the tax portion.
Worked Example
A product costs $100 before an 18% GST.
Adding tax: 100 × 1.18 = $118 total, with $18 being the GST.
Now reverse it: if a receipt shows $118 total including 18% GST, the pre-tax amount is 118 / 1.18 = $100 — not $118 × 0.82, which is a common and costly mistake.
Frequently Asked Questions
Is GST the same as VAT?
They function almost identically — both are consumption taxes added at the point of sale — but the naming and specific rate structures vary by country (GST in India/Canada/Australia, VAT in the EU/UK).
Do all products have the same tax rate?
No — most tax systems use multiple tiers, with essentials often taxed at a reduced rate and luxury goods taxed higher, so always confirm the applicable rate for your specific product.
