Tax on tax

Tax on Tax – This term describes a scenario in which one tax is levied on an amount that already contains another tax component. Instead of being computed on the untouched base price, the subsequent tax is imposed on a tax-inclusive value, creating a compounding—or cascading—effect that raises the final amount payable. Example: Imagine a product priced at ₹1,000 before taxes. An excise duty of 10% adds ₹100, making the price ₹1,100. GST at 18% is then charged on ₹1,100 instead of the original ₹1,000, resulting in ₹198 of GST. The customer ultimately pays ₹1,298, demonstrating how GST was charged on a value that already included excise duty—an illustration of tax on tax.