GST - How It Works

The GST Goods and Service Tax ,How it is different from the current Tax structure.

Stage 1 :- Consider a garments manufacturer,he buys raw material worth 1000/-,It includes a tax lets say 10%.By using these raw material he manufacture ready  made garments.After the manufacturing he priced the good at 1300(1000+300) as he adds value in the manufacturing process.
At a tax rate of 10% the tax on the finished good is 130/-.But under GST he can set off this tax against tax he already paid on raw material.Then the effective GST would be 130-100 = 30.

Stage 2 :-Then wholesaler will purchase the goods at 1300 and he adds his margin lets say 200.then it would be 1500.At 10% tax rate the tax on this would be 150/-.But he can set off his tax as he already paid tax of 130,so the effective tax would be 150-130=20.

Stage 3:-The retailer gets the product from wholesaler at price of 1500.then he adds his margin lets say 100.The effective value would be 1600.At 10% tax he can set off tax of tax i.e.160-150=10.

Because of this there will be no cascading effect of Tax on Taxes.Thereby the effective final price will come down.