GST - Goods and Services Tax

The "Goods and Services Tax" was introduced to reduce and simplify the complex structure of Indirect taxes in the country. GST would be the comprehensive indirect tax that would replace all the other indirect taxes levied by the Central and the State governments of India.

GST would tend to remove the cascading effect of taxes we call "taxes on taxes". It can be easily understood with the simple illustration. Suppose  A sells goods of Price Rs. 100 to B after adding indirect tax @10%. So, the final price that B has to pay if Rs. 110. Again, if B sells the same product  to C, he calculates the sales tax of 10% on the price Rs. 110, that means C gets the product at the price Rs. 121.

In the above scenario, as B calculates his tax liability, he also included the sales tax paid by him while buying a product from A. In this way it  becomes a tax on tax, due to which the final price of the product has increased.