Goods and Services Tax – What you need to know

We pay a lot of different types of taxes levied by the Central and the State Government in India. The taxation structure is beyond the understanding of a layman. The Rajya Sabha has passed the Goods and Services Tax bill. Lets us have a look at what it is and how does it affect us as the end consumers.

What is GST?

GST is the abbreviated form of Goods & Services Tax. As the name suggests Goods and Services Tax is applicable on both goods and services. Currently, we pay a variety of indirect taxes in India like the Entertainment tax or VAT (Value Added Tax). All the states impose different  indirect taxes with varying rates.  The purpose of GST bill is to abolish all the indirect taxes and levy only GST. Therefore it means that the consumer only pays one tax.

Application of GST

From now on GST will be levied at every point in the supply chain. GST will be levied by the Central and the State Government as CGST and SGST respectively. GST is charged on value added goods and hence the tax paid by the parties in the supply chain will be claimed back by them. And the tax will be borne by the end consumer. GST is just like any other indirect tax and is borne by the consumers. But a single tax paid as compared to the indirect taxes paid currently.


Lets look at the example below to understand the application better.


example of gst


So as the table gives the the Net GST, the tax that the consumer has to bear will be 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. While in a non GST system these taxes paid by the parties in the chain cannot be set off and hence the consumer has to bear the total amount of taxes paid as well as the cost of the good.

Once the GST comes into effect, the tax system will be comprehensive and effective.



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