Ways in which GST benefits and empowers citizens

1. Reduction in overall tax burden: It is expected that the tax burden on industries and trades will be reduced, which will result in an increase in consumption and a decrease in the price of goods and services. The ultimate result of this change is expected to be an increase in the production level and development of the industries. 

2. No hidden taxes: As GST is replacing all indirect taxes with one tax, there are no chances of a hidden tax within the invoice of the goods and services. For example, if a commodity costs ₹500, it means that the overall cost of the commodity is ₹500 without any hidden taxes. 

3. Development of a harmonised national market for goods and services: Harmony in tax rates, laws and procedures simplifies its compliance. The common interface of the GST portal brings synergy and efficiency to the filing of taxes. Earlier, service tax and VAT had their own returns and compliances, which was time-consuming. However, GST merges both compliances and lowers the number of returns, ultimately reducing the time spent on these compliances. 

4. Higher disposable income in hand: Disposable income is the money at hand left with the consumer after making all expenses. As GST has reduced the tax burden on the taxpayers, it will increase their disposable income. 

5. Customers have a wider choice: Earlier due to cascading effect, the customer used to have less disposable income at hand to spend on goods and services. But, the reduction in prices of goods and services, and tax burden has increased the disposable income of the consumers giving them a wide choice while purchasing goods and services. 

6. Increased economic activity: Reduction in prices of goods and services, increase in disposable income of consumers, and decrease in the price of goods and services is leading the consumers in performing economic activities. 

7. More employment opportunities: With the implementation of GST, the manufacturing of goods has become simplified, resulting in an increase in the number of manufacturers and industries. More industries will bring employment opportunities to the country, benefiting the citizens of India. 

The Goods and Services Tax or GST is a single, indirect tax that integrates all indirect taxes within the Indian economy. The GST Act was passed on 29th March 2017 in the Parliament of India and came into effect on 1st July 2017. The idea behind it was to replace multiple layers of taxation with one tax (GST). It has replaced 17 indirect taxes (9 State-level taxes and 8 Central level taxes) and 23 cesses of the States and Centres that existed earlier, including Central excise duty, Service tax, Value Added Tax (VAT), Luxury Tax, etc. The aim behind implementing the GST Act was ‘One Nation and One Tax’. When GST was implemented, 1300 goods and 500 services were taken into consideration. 

GST is a destination-based consumption tax as it is charged at every stage, wherever some value is added to the goods or services, and the supplier of the good or service off-sets the charge on its inputs of the previous stages. The charge is offset through the tax credit mechanism. Ultimately, the last dealer passes on the added GST to the consumer of the goods or services. The reason behind charging input credit at every stage of the value chain is to avoid the cascading effect. Cascading effect means charging tax on tax. The Government of India has eliminated the cascading effect with the expectation of reducing the prices of goods or services and benefiting the consumers. 

Cascading Effect means charging tax on tax. 

For example, 

A company is manufacturing Good X at the cost of ₹1,000 on which it has to pay Excise Duty @ 10% to the Central Government and VAT @ 12% to the State Government. 

Cost = ₹1000

Excise Duty @ 10% = ₹100

VAT @ 12% (of 1100) = ₹ 132

Therefore, the dealer’s invoice for the Good X will be ₹1,232 (1,000+100+132). 

Now, the manufacturer will sell the Good to the dealer at ₹1,100.

Cost of Good X for the dealer is ₹1,100 (Cost of Good X + Excise Duty)

Suppose the dealer adds a profit margin of ₹200 on each good. Then the VAT paid by the dealer will be 12% of ₹1,300 (1,100 + 200) = ₹156.

The invoice will be ₹ 1,456 (1,100+200+156). 

It can be seen that initially, Excise Duty is charged on the Good X, on which further VAT is levied. This is known as cascading effect, i.e., charging tax on tax. 

GST avoids this cascading effect by charging tax only once. With GST, the tax will be charged as a percentage of the cost of goods directly. 

The three types of taxes under GST are:

• Central Goods and Services Tax (CGST): GST levied by the Centre on the Intra-State supply of goods or services. 
• State Goods and Services Tax (SGST): GST levied by the State (including Union Territories with legislatures) on the Intra-State supply of goods or services by the State.
• Integrated Goods and Services Tax (IGST): GST collected by the Centre and levied on the Inter-State supply of goods or services. In other terms, IGST is the total of CGST and SGST.