There were a plethora of indirect taxes before the Goods and Services tax was implemented in India. Moreover, the indirect tax system under GST has helped in the collection of taxes and boost the development of Indian economy.
On the other hand filing, gst return by removing the indirect tax barriers between states has been integrating the country through a uniform tax rate and improving the collection as well.
It’s when you buy something you will be taxed on the already taxed goods. This paying of tax on tax is called the cascading effect which was prevalent in the previous system as applicable by the tax laws. The other problem is the denial of Input credit which is basically the taxes paid by manufacturers on the purchases. This cannot be claimed or reduced from the output tax while paying taxes payable in sales.
Right from manufacturing to distributing to final stage several taxes were being applied that eventually increased the cost of the product before GST. Simplifying the tax through GST has helped bring down the cost of the product by reducing the cascading effect resulted that earlier resulted in a major limitation on input credit.
GST is also mainly technologically driven. All activities like registration, return filing, application for refund and response to notice needs to be done online over a gst software on the GST Portal. This will speed up the processes and ensure consumers get the right price on the purchase of goods.
By evading the tax system before GST that were many indirect taxes levied by both state and center, the tax on tax is eliminated in this regime and the cost of goods decreased. Earlier States mainly collected taxes in the form of Value Added Tax or VAT and every state had a different set of rules and regulations making it even complex. Input credit rules central taxes and state taxes couldn’t be set off as the Interstate sale of goods was taxed by the Center. and above all many indirect taxes like entertainment tax and other local taxes that were levied by state and center gave no benefit of input credit. This is mainly because of a lot of overlapping of taxes levied by both state and center.
Whenever manufactured goods were sold Excise Duty was being charged by the center and it this was not just charged by the center. Over and above Excise Duty, VAT was also charged by the State. This lead to a tax on tax and the issue of overlapping cropped up.
The tax structure under the new regime not just offers the transparency but has three taxes applicable under the tax laws. This is the CGST-which is collected on intra-state sale by the central government, SGST-which is collected on intra-state sale by the state government and the inter-state sale collected by the Central government.
This structure is unlike the regime that was follwed earlier. Quashing that several forms of indirect taxes will no doubt benefit the consumer in a long run.