GST EXPLAINED IN LAYMAN WORDS

Meaning of GST

GST is abbreviation for Goods and Service Tax. GST is also known as Value Added Tax (VAT) in few countries.

GST / VAT is a consumption based tax wherein the basic principle is to tax the value addition at the each business stage. To achieve this, tax paid on purchases is allowed as a set off/ credit against liability on output/income.

GST is levied on all transaction of goods and services. Thus, in principle, GST should not differentiate between ‘goods’ and ‘services’.

For Example:

Stage 1 (Manufacturer)

Imagine a manufacturer of Trouser . He buys raw material or inputs — cloth, thread, buttons, tailoring equipment — worth Rs 100 a sum that includes a tax of Rs 10. With these raw materials, he manufactures a trouser

In the process of creating the trouser, the manufacturer adds value to the materials he started out with. Let us take this value added by him to be Rs 30. The gross value of his good would, then, be Rs 100 + 30, or Rs 130.

At a tax rate of 10%, the tax on output (trouser) will then be Rs 13. But under GST, he can set off this tax (Rs 13) against the tax he has already paid on raw material/inputs (Rs 10). Therefore, the effective GST incidence on the manufacturer is only Rs 3 (13 – 10).

Stage 2 (Manufacturer to Wholesaler)

The next stage is that of the good passing from the manufacturer to the wholesaler. The wholesaler purchases it for Rs 130, and adds on value (which is basically his ‘margin’) of, say, Rs 20. The gross value of the good he sells would then be Rs 130 + 20 — or a total of Rs 150.

A 10% tax on this amount will be Rs 15. But again, under GST, he can set off the tax on his output (Rs 15) against the tax on his purchased good from the manufacturer (Rs 13). Thus, the effective GST incidence on the wholesaler is only Rs 2 (15 – 13).

Stage 3 (Wholesaler to Retailer)

In the final stage, a retailer buys the trouser from the wholesaler. To his purchase price of Rs 150, he adds value, or margin, of, say, Rs 10. The gross value of what he sells, therefore, goes up to Rs 150 + 10, or Rs 160. The tax on this, at 10%, will be Rs 16. But by setting off this tax (Rs 16) against the tax on his purchase from the wholesaler (Rs 15), the retailer brings down the effective GST incidence on himself to Re 1 (16 –15).

Thus, the total GST on the entire value chain from the raw material/input suppliers (who can claim no tax credit since they haven’t purchased anything themselves) through the manufacturer, wholesaler and retailer is, Rs 10 + 3 +2 + 1, or Rs 16.

To conclude in GST regime there will be “NO TAX ON TAX and there will be seamless credit of tax available at each value addition of business stage

Tax Rates Before And After GST

Toothpaste, Branded Cereals May Cost More

Rates Up For Mobile Phones, Refrigerators

Shampoos, Perfumes May Cost More

Higher Rate On Electric Hot Plates

Wallpaper, Paints In Highest Slab

Fresh Milk, Vegetables Exempt

No Tax On Condoms

Lower Tax On Kerosene

Plastic Products To Cost More

Eating Out, Phone Calls Costlier

How to Pick Profitable Stocks ?

Stock selection

In Indian Stock market, a disciplined stock selection strategy is very are important for an investor to grow his personal wealth drastically. Investors stock picking strategies depend upon some factors which includes the performance of company, market and industry trends, and share prices.

Pick Profitable Stocks

Let us simplify for you some of the best stock picking strategies based on different investing style.

Investing for Growth

In this strategy, you need to focus on fast growing companies, which are showing major increase in revenues and profits. This kind of investors who focus on this strategy intend on making money from the significant increase in the share prices of companies they decide to invest.

Returns from growth stocks

The returns from growth stocks are largely higher than that of other type of stocks. Though, the risks involved in this type of stocks are high as compared to others. This type of investors pick young and fast-growing companies, regardless of the expensiveness of these stocks, as the investors bet on the future growth potential of the companies. The fundamental idea of growth investing may differ from industry to industry and company to company.

Investing in Value Stocks

This kind of strategy is different to growth investing mentioned above. These investors focus on stocks, which are trading below their intrinsic values. Value investors look into the fundamentals of the companies cautiously and they believe that the market undervalues these stocks.

Value investing

Value stocks are comparatively cheaper to the net asset value (NAV) of their respective companies. Value investing does not mean to pick a cheap stock, rather investing in undervalued stocks that have good growth potential.

GARP Investing Strategy

GARP (Growth At Reasonable Price) Investing Strategy, is a mixture of value investing and growth investing strategies. Through GARP investing strategy, an investor focus on stocks that are reasonably priced, at the same time possess robust growth potential.

In other words GARP investors do not go for high growth stocks that have high risks or cheaply priced stocks, which are in problem. So, GARP investors avoid expensive high-growth stocks. The significant barometer for GARP investors is PEG ratio, which is PE ratio divided by growth.

Fundamental Analysis of Stocks

Using Fundamental analysis, an investor or analyst tries to estimate the intrinsic value of a stock based on fundamentals. Although this strategy takes more time and effort, it is appropriate for long-term investors.

Earning trends

With fundamental analysis, an investor try to understand the earning trends of a company and expected earnings in the future, rather than market sentiments. Further more than earnings and revenues, investors also focus on factors such as, ROIC (Return On Invested Capital), ROE (Return on Equity), cash flows and P/E ratio etc. Many Indian Business magazines are available with all of these factors for each company.

Using Technical Analysis to Pick stocks

Technical analysis ( chart analysis), is an investing strategy through which investors weigh the future price movement of a stock through past performance. Technical analysis mainly depends upon the demand and supply of the particular stock and trading volumes.

Intrinsic value stock

Technical analysis is quite contrary to fundamental analysis. Technical analysts do not bother much about the intrinsic value stock.

Regardless of the advantages and disadvantages of the above-mentioned stock picking strategies, many investors are making millions irrespective of the strategies they choose.

Always an investor’s choice of a particular strategy should depend upon his/her knowledge about the market, industry trends and growth potential of companies. Most important is investors devotion of time and risk calculation capabilities play major role in choosing a particular stock picking technique.

A mixture of above strategies to fine tune and pick the winning stocks works the best in Indian Stock markets.