What is Goods and Service Tax?

The Goods and Services Tax (GST) is a multi-stage, destination-based tax that will be levied on every value addition.

The GST was launched on July 1, 2017 by the NDA government with an aim to revolutionise the way India does its taxes.

GST is now levied on value additions at each stage of the production cycle – buying raw materials, processing, manufacturing, warehousing and sale to customers – the monetary worth added at each stage to achieve the final sale to the end customer will be taxed. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

Earlier, the central government use to levy excise duty on the manufacture, and then the state adds VAT (Value Added tax) when the item was sold to the next stage in the cycle – i.e. from processed raw material like rubber to be manufactured into tyres. Then there would be a VAT at the next point of sale – i.e. when the tyre is sold to the dealership and then to the consumer and so on.

GST would apply to all goods other than crude petroleum, motor spirit, diesel, aviation turbine fuel and natural gas. The government has opted for four slabs for both goods and services – 5%, 12%, 18% and 28%. In addition, several items face zero levy, while bullion will attract 3% GST and luxury and sin goods that are in the top bracket will also attract a cess that will be used to compensate states for revenue loss.