GST on MRP – Meaning, Rules & Calculation

Today, when you buy any product from the store, you may invariably look at one critical factor on the pack, i.e., MRP (Maximum Retail Price). But what does this imply, especially with regards to the Goods and Services Tax or GST. Do you have the same question? Let us know the answer in this guide as we explore the intricacies of GST on MRP and its implications for you (the customer).

 

What is MRP?

 

MRP, or Maximum Retail Price, is the price fixed at which retailers or all sellers can sell the product to customers. This price is determined by the manufacturers of products based on factors like manufacturing cost, taxes (including GST), marketing costs, transportation, profit margin, etc.

 

According to the government, the MRP must be clearly mentioned in the product package and include all taxes. This pricing policy ensures complete transparency and prevents sellers from overcharging customers. As per the Consumers Goods Act of 2006, retailers cannot charge more than the MRP mentioned on the product package.

 

Why is MRP so important?

 

MRP has been a beacon for consumers, giving them a clear indication of the products’ fair prices. It allows you to make an informed decision while buying any product from the market and protects you from price manipulation by retailers.

 

Additionally, MRP creates fair competition among retailers and vendors, giving them a level playing field on which to grow their businesses.

 

GST on the MRP

 

Since the implementation of the new tax regime, i.e., GST in 2017, many people have been confused about the application of GST on the MRP of the products they purchase. So, as a customer, it is imperative to understand that the MRP you see printed on the product package includes GST.

 

Therefore, retailers cannot charge additional GST on MRP-priced items. If you notice any such practice, you can legally take action against the retailers and file a suit against them in the consumer court.

 

Now that you know the GST full form and its meaning, let us come to the most important part: how the GST is calculated on products with MRP.

 

When the manufacturers determine the final selling price of their products, the GST is applied to the price, and that becomes the MRP of the product. The GST obviously has an impact on the MRP and here is how it is calculated.

 

The GST on the MRP of the product may vary based on the product category. The different GST slab rates in India are 5%, 12%, 18% and 28%. If you are wondering how to calculate GST, let us understand this with an example

 

The formula for computing the GST on the MRP of the product is quite simple, it is

 

GST Amount = (Original cost x GST%)/100

 

For example, if you want to buy a new pair of sunglasses that are priced at Rs. 1,500 and the GST rate is 12%

 

The GST-related regulations on MRP products and the challenges, as per the above formula, the GST on the above MRP

 

GST = (1500 x 12%)/ 100 = Rs. 180

 

So, the actual price of the shoe, i.e., the final price you would have to pay to the lender, would be

 

Rs. 1500 (original cost) + Rs. 180 (GST) = Rs. 1,680

 

Challenges with GST on MRP and the regulations

 

As a customer, you have an important role in ensuring that retailers and vendors do not indulge in unfair and unethical practices and charge a higher amount above the maximum retail price of the product, as mentioned in the package. Although the government has set out clear guidelines and rules for retailers to follow, many tend to ignore them and charge more than the MRP, often covered under the guise of GST.

 

So, if you face or notice any such practice, you must report the incidents and protect your and fellow consumer’s rights. If your retailer overcharges you, you can file a complaint through legal channels like the Ministry of Consumers Affairs, Consumer Dispute Redressal Forums, Anti-Profiteering Commissions, etc.

 

If you file a suit and the vendor or the retailer is found guilty of charging an additional GST over and above the product's MRP, they can face penalties. As per the Central Government of India mandate, such vendors are liable to pay a penalty of Rs. 1 Lakh or face imprisonment of up to 1 year for such offences.

 

Also, the state Anti-Utility Authority set up by the Government of India ensures that every citizen of the country benefits from reduced GST. As a consumer, you can file a complaint with this authority if you believe that the retailers are charging unfairly or engaging in unethical profiteering practices.

 

These strict penalties serve as a deterrent to unethical business practices and protect the interests of the consumers.