Goods and Services Tax

Goods and Services Tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption in a country, aiming to simplify the taxation system and eliminate the cascading effect of taxes on the final consumer.

Example of GST Application

Scenario:
A manufacturer produces furniture and sells it to a retailer:

• Cost of raw materials: ₹50,000

• GST on raw materials: ₹9,000 (input GST)

• Selling price to retailer: ₹80,000

• GST on sale (18%): ₹14,400

GST payable:

• Total GST collected: ₹14,400

• Less input tax credit (₹9,000)

• GST remitted to government: ₹5,400

• Retailer sells furniture to final consumer for ₹1,00,000 + 18% GST = ₹1,18,000

• Retailer claims ITC on ₹14,400 paid to manufacturer

• Final GST burden is borne by the consumer, avoiding cascading tax