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Exercises · Q22
Q.

The monthly expenditure (Rs.) of a family on some important items and the Goods and Services Tax (GST) rates applicable to these items is as follows:

ItemMonthly Expense (Rs)GST Rate %
Cereals15000
Eggs2500
Fish, Meat2500
Medicines505
Biogas505
Transport1005
Butter5012
Babool1012
Tomato Ketchup4012
Biscuits7518
Cakes, Pastries2518
Branded Garments10018
Vacuum Cleaner, Car100028

Calculate the average tax rate as far as this family is concerned.

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The average tax rate for the family is a weighted average of the GST rates, using each item's monthly expense as its weight. ∑(Expense×Rate)=33800\sum(\text{Expense}\times\text{Rate}) = 33800 and total expense =3500= 3500, so the average rate is 9.66%.

Concept first

Different items attract different GST rates, so the effective tax rate a family pays is a weighted average of the individual rates — each rate weighted by how much the family spends on that item:

Average tax rate=∑(Expense×Rate)∑Expense\text{Average tax rate} = \frac{\sum (\text{Expense}\times\text{Rate})}{\sum \text{Expense}}

Working

Group items by GST rate and compute Expense × Rate:

GST rateItemsExpense (Rs)Expense × Rate
0%Cereals 1500, Eggs 250, Fish/Meat 25020000
5%Medicines 50, Biogas 50, Transport 1002001000
12%Butter 50, Babool 10, Ketchup 401001200

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