What is GST? How does it Work?
GST is one indirect tax for the whole nation, which will make India one
unified common market. GST is a single tax on the supply of goods and services,
right from the manufacturer to the consumer. Credits of input taxes paid at each
stage will be available in the subsequent stage of value addition, which makes
GST essentially a tax only on value addition at each stage. The final consumer
will thus bear only the GST charged by the last dealer in the supply chain, with
set-off benefits at all the previous stages.
What are the Benefits of GST?
The benefits of Goods and Services Tax are:
Benefits from GST for Business and Industry
1. Easy compliance
A robust and comprehensive IT system would be the foundation of the GST regime
in India. Therefore, all tax payer services such as registrations, returns,
payments, etc. would be available to the taxpayers online, which would make
compliance easy and transparent.
2. Uniformity of tax rates and structures
GST will ensure that indirect tax rates and structures are common across the
country, thereby increasing certainty and ease of doing business. In other
words, GST would make doing business in the country tax neutral, irrespective of
the choice of place of doing business.
3. Removal of cascading
A system of seamless tax-credits throughout the value-chain, and across
boundaries of States, would ensure that there is minimal cascading of taxes.
This would reduce hidden costs of doing business.
4. Improved competitiveness
Reduction in transaction costs of doing business would eventually lead to an
improved competitiveness for the trade and industry.
5. Gain to manufacturers and exporters
The subsuming of major Central and State taxes in GST, complete and
comprehensive set-off of input goods and services and phasing out of Central
Sales Tax (CST) would reduce the cost of locally manufactured goods and
services. This will increase the competitiveness of Indian goods and services in
the international market and give boost to Indian exports. The uniformity in tax
rates and procedures across the country will also go a long way in reducing the
Benefits from GST for Central and State Governments
Simple and easy to administer
Multiple indirect taxes at the Central and State levels are being replaced by
GST. Backed with a robust end-to-end IT system, GST would be simpler and easier
to administer than all other indirect taxes of the Centre and State levied so
Better controls on leakage
GST will result in better tax compliance due to a robust IT infrastructure. Due
to the seamless transfer of input tax credit from one stage to another in the
chain of value addition, there is an inbuilt mechanism in the design of GST that
would incentivize tax compliance by traders.
Higher revenue efficiency
GST is expected to decrease the cost of collection of tax revenues of the
Government, and will therefore, lead to higher revenue efficiency.
Benefits from GST for Consumers
Single and transparent tax proportionate to the value of goods and services
Due to multiple indirect taxes being levied by the Centre and State, with
incomplete or no input tax credits available at progressive stages of value
addition, the cost of most goods and services in the country today are laden
with many hidden taxes. Under GST, there would be only one tax from the
manufacturer to the consumer, leading to transparency of taxes paid to the final
Relief in overall tax burden
Because of efficiency gains and prevention of leakages, the overall tax burden
on most commodities will come down, which will benefit consumers.