GST - A Single Taxation System in India

There are question in mind of every native of India, “what is GST?” “What is difference between GST and previous tax structure”  “Is GST is applicable to me?” “What are the consequences of GST on their expenditures and savings” and many more. Roughly idea they are drawing in their mind is that it is single taxation system in whole country, but it is many more to it. As it is set to applicable in whole country from 1st of July 2017, we need to understand this new concept of tax system.

What is GST?

Goods and Service Tax, a taxation system imposed on the services and products offering in India. It is multi-slab and comprehensive. Old tax structure includes Service tax, Sales tax, Vat, and 14 other taxes. Including all these taxes, there is around roughly 28% to 30% total tax on products. There is value addition in every stage, i.e. from manufacturer to consumer. But in GST there is single tax imposed on products and it will be levied on every value addition, because it is destination based.

Structure of GST

Let us consider old taxation system. There are multiple stages an item goes through from raw material to final stage. First raw materials are bought, then it goes to manufacturer, from manufacturer to warehouse, warehouse to retailer and final stage is consumer. In every stage there is a value addition, i.e., VAT (Value Added Tax) . The monetary worth added to every stage will be levied in GST. Old tax system is divided in two-direct and indirect tax.

In direct tax liability cannot be passed to someone else, for example income tax in which individual is alone liable to pay tax on it. But in indirect tax liability can pass to someone else, for example, a manufacturer sells a product to retailer and pass the liability to retailer. As a result, retailer pays the price of an item as well as the VAT on it. Indirectly retailer is depositing VAT to government. As the chain goes on, the customer has to pay high price for an item.

GST is divided in three sub categories- CGST(revenue collected by central government), SGST(collected by state government for intra-state) and IGST(collected by central government for inter-state). CGST and SGST are imposed on that items which are sold within state, while IGST is supposed to impose on that product which are sold outside the state. Suppose an article is of 100 rupees and after 10% of GST, 10 rupees of tax is conducted from the article, then 5-5 rupees will go to state and central government.

Benefits of GST

  1. Removal of cascading tax effect which means tax pays on tax.

  2. Lower tax on small businesses (with turnover of 20-75 lakhs) and it is also called optional or composition scheme.

  3. Ease of e-commerce business, there is no complication in movements of goods.

  4. Lowering the price of daily products and many more.

Disadvantages of GST

  1. Petroleum is not a part of GST.

  2. Increase in tax for manufacturing and operating cost of many small businesses.

  3. Country who has GST had faced hike in inflation when they first introduced it.


There is nothing perfect, merits and demerits are always two aspects of one. Change is never easy, when there is change there are some mismanagement occurs as we have seen in demonetization. It will cause some troubles and sudden hike in inflation but once it settles properly it will definitely give ease to everyone by easy inputs and reduced taxes as seen in other developed countries.