Goods and Services Tax

GST (Goods and Services Tax) is a tax on what people consume. It is called a destination-based tax because the tax goes to the place where the goods or services are finally used.

It is charged at every stage, from the factory to the shop, but each seller gets credit for the tax already paid at the earlier stage. So each stage pays tax only on the value it adds, and the full weight of the tax falls on the final consumer. This removes the old problem of tax being charged on tax.

GST replaced many older taxes. Central taxes such as central excise duty and central sales tax went into CGST. State taxes such as VAT, entertainment tax, luxury tax and entry tax went into SGST. None of them carries on alongside GST.

• Sale within one State: CGST (goes to the Centre) + SGST (goes to that State), half each. Ramesh in Punjab sells goods worth ₹10,000 to Seema in Punjab at 18% GST: ₹900 CGST + ₹900 SGST = ₹1,800 in all.
• Sale from one State to another, and imports: IGST, collected by the Centre and shared with the States. Goods worth ₹1,00,000 sent from Madhya Pradesh to Rajasthan at 18% carry IGST of ₹18,000.

Why two taxes, central and state? India is a federal country: both the Centre and the States have their own work and need their own money. A dual GST respects that, and the Constitution was amended to bring it in.

GST is one law across the country, with few rates and no extra cesses, resale tax or octroi on top. It has cut paperwork, widened the tax base and made Indian goods more competitive.