Goods and Service Tax (GST) is a comprehensive Indirect Tax levied on goods and services consumed in an economy. GST is levied at every stage of the supply chain with eligibility of Input Tax Credit in respect of the tax remitted at previous stages. It is basically a tax on final consumption with tax being collected at each stage. To explain it in simple words, GST is a tax on supply of goods and services, which is levied at each point of supply of goods / services with a mechanism to claim input tax credit paid on procurement of goods or services.


Let us understand the working of GST on a manufactured commodity from point of view of a manufacturer, wholesaler, retailer and final consumer.

Assuming GST rate is 20%.
Stage of Supply Chain Value of Supply Rate of GST GST on Output Purchase Value of Input Input Tax Credit (ITC) Net GST Payable = GST on Output – ITC
Manufacturer to Wholesaler 1300 20% 260 1000 200 260 - 200 = 60
Wholesaler to Retailer 1500 20% 300 1300 260 300 - 260 = 40
Retailer 1600 20% 320 1500 300 320 - 300 = 20

The adoption of GST is perceived as a positive form of tax since it increases consumption and encourages savings and investments. It is a form of taxation which will be more evenly spread across the population, minimizing economic distortions by providing comprehensive coverage.

GST shall subsume various central and state indirect tax levies which is tabulated as under


  1. Central Excise Duty
  2. Additional Duties of Excise
  3. Service Tax
  4. Counter – Veiling Duty
  5. Special Additional Duty
  6. Central Sales Tax
  7. Excise Duty On Medicinal And Toilentries and Perparations


  1. State Level VAT
  2. Sales Tax
  3. Entertainment Tax
  4. Luxury Tax
  5. Taxes On Lottery, Betting and Gambling
  6. Entry Tax Not In Lieu Of Octroi
  7. Surcharges and Cesses