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Goods and Services Tax Simple Explanations, Concepts

We are starting an easy-to-understand series on topics related to GST, which is due to be applicable in India from 1.4.2016.

What is GST ?

“Goods and Service Tax (GST) is a comprehensive tax levy on

sale, and
consumption of goods and services at a national level.

There is no distinction between taxable goods and taxable services and they are taxed at a single rate in a supply chain of goods and services till the goods / services reach the consumer.

GST is levied at every stage of the production / distribution chain with applicable set offs in respect of the tax remitted at previous stages. The seller or service provider may claim the input credit of tax which he has paid while purchasing the goods or procuring the services.

For Example: A product whose base price is Rs.100 and after levying excise duty @ 12% value of the product is Rs. 112. On sale of such goods VAT is levied @ 12.5% and value to the ultimate consumer is Rs. 126. In the proposed GST system on base price of Rs.100 CGST and SGST both will be charged, say @ 8% each, then the value to the ultimate consumer is Rs. 116. So, in such a case the industry can better compete in global environment.


GST will simplify and harmonise the indirect tax regime in the country. It is designed to simplify present indirect tax system by integrating the union excise duties, customs duties (CVD/SAD), service tax and state VAT into a single structure.

GST will broaden the tax base, and result in better tax compliance due to a robust IT Infrastructure. Due to the continuous transfer of input tax credit from one state to another in the chain of value addition, there is an in-built mechanism in the design of GST that would increase tax compliance by traders resulting in increased revenue to centre and state.

GST will create a single, unified Indian market to make the economy stronger. As it is neutral to business processes, business models, organization structure, geographic location, product substitutes, it promotes economic efficiency and sustainable long term economic growth. It will enhance manufacturing and distribution efficiency, reduces cost of production of goods and services, increases demand and production of goods and services. It is thus, expected that introduction of GST will foster a common and seamless Indian market and contribute significantly to the growth of the economy.

It will give competitive edge in international market for goods and services produced in a country, leading to increased exports. It will enhance the ability of companies to compete globally, and possibly trickle down to benefit the ultimate consumer.

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