GST on MRP - Meaning, Rules & Calculation

What is MRP, how to calculate it with clear examples and formula, and why is MRP important? Also, explore the challenges, regulations, and penalties associated with charging GST on MRP.

16 Apr,2024 08:40 IST 242
GST on MRP - Meaning, Rules & Calculation

In today’s crowded marketplace, whenever we pick up a product, our eyes naturally scrutinize one important factor: the Maximum Retail Price (MRP). But what exactly does MRP mean, especially regarding the Goods and Services Tax (GST)? Let us examine the intricacies of MRP under the GST regime and its implications for consumers.

What is Maximum Retail Price (MRP)?

MRP is the maximum price fixed by manufacturers of products sold in India. It’s the price you see on the package, after all taxes. This pricing provides transparency and prevents sellers from overcharging customers. Under the Consumer Goods Act of 2006, retailers cannot charge more than the MRP printed on the product.

MRP is determined based on various factors such as manufacturing and packaging costs, profits, taxes (including GST), transportation, marketing costs, and so on.

Why is MRP important?

The MRP acts as a beacon to the consumer, indicating the product's fair price. It allows consumers to make an informed decision while buying and prevents price manipulation. Moreover, MRP creates fair competition among vendors, creating a level playing field in the market.

MRP under the GST regime

Since the implementation of GST in 2017, there has been confusion over the application of GST on MRP items. However, it is important to clarify that MRP already includes GST. Therefore, retailers should not charge separate GST on MRP-priced goods. This practice is illegal and violates consumer rights.

Challenges and Regulations

It is important to emphasize customers' role in ensuring that they are not unfairly charged above the maximum price (MRP) charged by retailers. Despite clear guidelines and rules, there continue to be cases of vendors charging more than the MRP, often covered up by the GST hike.

Consumers play an important role in reporting such incidents and protecting their rights. If a seller charges more than the MRP, customers can reject this and file a complaint against the seller. These complaints can be lodged through channels such as the Ministry of Consumer Affairs, Anti-Profiteering Commissions, or Consumer Dispute Redressal Forums.

Also, the State Anti-Utility Authority set up by the Government of India remains committed to ensuring that the benefits of reduced GST are passed on to consumers. This jurisdiction is not limited to cases where retailers except amounts above MRP rather, it examines whether the alleged collection of input taxes of goods or services is valid. Consumers can file complaints with this authority if they believe they are being unfairly charged or suspect businesses are engaging in profiteering practices.

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Penalties for charging GST on MRP

Vendors found guilty of charging more than the MRP, including GST, can face severe penalties. The Central Government has imposed a penalty of up to ₹1 lakh or imprisonment of up to one year for such offense. These penalties serve as a deterrent to unethical business practices and protect consumer interests.

MRP Calculation with Formula

A product’s MRP considers many factors beyond its manufacturing cost. Here's a breakdown to help you understand:

MRP = Manufacturing Cost + [Cost Components] + GST + [Other Costs]

Cost Components:

CnF Margin (Cost & Freight): Covers import costs if applicable.

Packaging/Presentation Cost: Includes materials and design for the product's packaging.

Stockist Margin & Retailer Margin: Profits earned by distributors and retailers.

Shipping: Transportation costs from manufacturer to seller.

Marketing/Advertising Costs: Expenses for promoting the product.

Other Costs: Any additional expenses incurred.

Calculating GST

GST is applied to the final selling price, which impacts the MRP. Here's how GST is calculated:

GST Rates:

Depending on the product's category, various applicable GST slab rates in India include 5%, 12%, 18%, and 28%.

Adding GST:

To find the final price (including GST) of an item:

  • GST Amount = (Original Cost * GST%) / 100
  • Net Price (Including GST) = Original Cost + GST Amount

For example, you buy a new pair of shoes worth ₹1,500 and a 12% GST rate.

Find the Net Price (including GST):

GST Amount = (Original Cost X GST%) / 100

= (₹1,500 X 12%) / 100 = ₹180

Net Price = Original Cost + GST Amount = ₹1,500 + ₹180 = ₹1,680

Price before GST

Calculate GST Amount: GST Amount = Original Cost – (Original Cost * (100 / (100 + GST% ) ) )

That is: ₹1,500 – (₹1,500 * (100 / (100 + 12%) ) ) = ₹1,500 – ₹1,333.33 (rounded to ₹1,333)

Net Price (without GST): Net Price = Original Cost – GST Amount = ₹1,500 – ₹1,333 = ₹167

Remember, knowing about GST can help you compare prices and make a purchase accordingly.

Revised MRP and GST amendments

Since the implementation of GST, there have been cases where customers are asked to pay more than the Maximum Retail Price (MRP), with prices going up due to GST. However, it is important to note that per the guidelines, the manufacturer must advertise this change in at least two newspapers if prices go up due to GST.

In addition, manufacturers must place stickers showing old and new prices on old stock. This ensures transparency and compliance so consumers are informed of any price changes due to GST.

Where GST rates change, manufacturers must update their products' MRPs. The revised MRP should reflect both the old MRP and the tax change and ensure transparency and compliance. Manufacturers must follow specific guidelines for notifying the revised MRP, including advertisements in newspapers and notifications to the relevant authorities.

Manufacturers need to follow some rules while revising MRP due to GST changes:

- Both the original and revised MRP must be clearly displayed on the product without labeling.

- The increase in MRP due to tax changes cannot exceed the actual increase in the item's price.

- Revised MRP advertisements are only required for stock items, not new items made after July 1, 2017.

Maximum Retail Price (MRP) is not just a number on a package; it is the cornerstone of consumer protection and fair trading practices. Under the GST regime, MRP still includes all taxes, including GST. Any deviation from this principle is a violation of consumer rights and attracts a penalty. As consumers, let us be informed of our rights and ensure compliance with MRP regulations for a fair and transparent market.

FAQs

Q1. What can consumers do if the retailers charge more than the MRP?

Ans. If the retailer charges a consumer more than the MRP, the customer can reject this and file a complaint through the Ministry of Consumer Affairs, Anti-Profiteering Commissions, or Consumer Dispute Redressal Forums. The State Anti-Utility Authority also examines whether the alleged collection of input taxes is valid. Consumers can file complaints with this authority if they suspect being unfairly charged. Guilty vendors can face severe penalties of up to Rs. 1 lakh or imprisonment of up to one year for such offenses.

Q2. Is there a limit on MRP?

Ans. A product’s MRP sets a maximum price that cannot go beyond the increase in its wholesale cost. This price must also include all other charges like packaging, shipping, and so on. The MRP cannot be set below the product's actual production cost so that the seller gets a minimum profit margin.

Q3. What is the section for selling more than MRP?

Ans. Section 36(1) in The Legal Metrology Act, 2009 states: “Whoever manufactures, packs, imports, sells, distributes, delivers or otherwise transfers, offers, exposes or possesses for sale, or causes to be sold, distributed, delivered or otherwise transferred, offered, exposed for sale any pre-packaged commodity which does not conform to the declarations on the package as provided in this Act, shall be punished with fine which may extend to twenty-five thousand rupees, for the second offence, with fine which may extend to fifty thousand rupees and for the subsequent offence, with fine which shall not be less than fifty thousand rupees but which may extend to one lakh rupees or with imprisonment for a term which may extend to one year or with both.”

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