About you pay a tax on tax. Let’s


GST is a
huge step for indirect taxation in India, the likes of which the country has
not seen post Independence. GST will simplify indirect taxation, reduce
complexities in business, and remove the cascading effect from our taxation
system. Experts believe that it will have a
major positive impact on businesses both big and small, and change the way
Indian economy functions.

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taxes such as income tax are borne by the person liable to pay the tax;
this means that the tax burden cannot be shifted to other person. The liability
of Indirect taxes on the other hand,
can be shifted to another person. So, the person responsible to pay the tax can
gather the tax from someone else and then pay it to the government, thus shifting
the tax burden. The GST tax falls in this category. The current indirect tax
structure can be classified as:

Central taxes: levied by the Central government
(includes Central Sales Tax, Excise Duty etc.)

State taxes: levied by the various state government
(VAT, Service Tax)

The current
indirect tax has one major problem – the casacading
effect. When you purchase something, you pay a tax on tax. Let’s understand
this with hypothetical example:

Suppose a firm sells machinery worth Rs. 3000 to a
distributor. The invoice would show the following:

Price of goods = 3000/-

Excise duty @ 12.5% = 375/-

Subtotal = 3375/-

VAT @ 14.5% on subtotal= 490/-

The total payable amount by the customer = 3865/-


and GST will be only charged on the selling price and
the subsequent parts of SGST and CGST would add to the value of goods as per
their percentage. The invoice under GST scenario would show the following:

Price of goods = 3000/-

CGST @ 9% = 270/-

SGST @ 9% = 270/-

The total payable amount by the customer = 3540/-


total difference of the two taxes = 3865-3540= 325/-

We saw in
Indirect tax that along the way the tax liability was passed on at every stage
of transaction and the final liability comes to rest with the customer. This is
called the Cascading Effect of Taxes where a tax is paid on tax and the value
of the good keeps increasing every time.


GST aims to solve this problem by introducing seamless Input Tax Credit (ITC). GST has removed
the additional, indirect and redundant taxes and has reduced the burden on the
common taxpayer.

of Goods & Services Tax

The Goods and Services Tax is imposed on the supply of
goods and services in the country. It includes multiple indirect taxes that are
imposed by the State Governments or the Central Government, such as Service
Tax, Purchase Tax, Central Excise Duty, Value Added Tax , to name few.

GST offers various benefits to the government, the
business, including the people of India. The price of goods and services is
supposed to reduce under the new policy, while the economy will receive a
positive boost. It is also expected to make domestic goods and services
internationally competitive.

Uniform Taxation

The objective of GST is to make India an integrated
economy by charging uniform tax rates and removing economic obstacles, thereby
making the country a common national market. The subsuming of indirect taxes
into just one tax will also provide a lift to the Government’s ‘Make in India’
campaign, as goods that are manufactured in the country will be competitive in
national and international markets.

Cascading of Taxes

The cascading of taxes will be eliminated by GST as
the whole supply chain will get an all-general input tax credit mechanism.
Business operations can be efficient at each stage of supply thanks to the
seamless accessibility to input tax credit across goods or services.

Lesser Number of Compliances

Compliance will be simpler through the coordination of
tax rates, laws and procedures. Inter-state disputes such as those on
e-commerce taxation and entry tax that presently prevailed will no longer cause
concerns, while multiple taxation on the same transactions will also be

The old tax regime had service tax and VAT, and they
both had their own procedures and returns. GST will combine them and reduce the
number of returns as well as the time spent on tax compliances. GST has 11
returns under it. Four of them are basic returns that are valid to all taxable
firms under GST.

Common Procedures

The procedures and formats for refund of taxes and
registration of taxpayers will be uniform. The tax base will also be common, as
well as the system of collection of goods or services in addition to the
timelines for each movement, thereby ensuring that taxation systems have
greater assurance.

Common Portal

The procedures for various processes like
registration, tax payments, refunds, returns, etc., will be automated and become
basic. Whether it is the filing of returns, filing of refund claims, payment of
taxes, or registration, all procedures will be done online via GSTN. The
verification of input tax credit will also be done online, and input tax credit
across the country will be corresponded electronically, thereby turning the
process accountable and transparent. As a result, the process will be executed
much faster since the taxpayer won’t have to interact with the tax

Lowered Tax Burden

The average tax burden on industry and trade is
expected to reduce due to GST, resulting in a reduction of prices and increased
consumption, which will increase production and eventually improve the
development of various industries. Domestic demand is set to soar and local marketers
will have greater opportunities, thus generating more employment within the

Regulation of Unorganised Industries

GST aims to make sure that payments and compliances
are done online, and input credit can only be available when the supplier
receives the amount, thus ensuring that these industries have regulation and

Composition Scheme

Small businesses can find break from tax burdens
through the composition scheme. Small businesses that have turnovers ranging
from Rs.20 lakh to Rs.50 lakh will be subjected to lower taxes.

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