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How GST Works?

GST simplifies taxation by taxing only the value added by each vendor in the supply chain, leading to fairer distribution and lower prices for end consumers compared to the conventional system.

Parag Kar by Parag Kar
25 Jun, 2017 - Updated On 21 Nov, 2024
in Goods & Service Tax
Reading Time: 2 mins read
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With GST round the corner (target date 1st July), the confusion about its understanding still exists. Though the concept is simple, but many (especially the laymen), find it difficult to comprehend. The purpose of this note is to explain it in simple terms, the advantage of GST compared to the conventional system.

GST (Working Principle)

GST works on the principle of ONLY taxing the vendor’s contribution to the “overall product’s value”. Also, the tax paid is not included in the price of the product sold to the vendor next in the chain. This uniformly distributes the burden of taxation to all vendors (in the chain) in proportion to their contribution (value added) to the end product – leveling the playing field especially for vendors at the end of the product chain. Also, the tax rate for a product category is same across the country – preventing arbitrage.

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Tags: Black Money ReductionConsumer PricingEconomic ReformGSTIndia EconomySupply ChainTax Base ExpansionTax CreditTaxation SystemValue Added Tax
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