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A value-added tax levied at the national level, GST is also a comprehensive indirect tax levied on manufacturer, sale, and consumption of goods as well as services. It has replaced all the indirect taxes levied on the goods and services by the Indian central and state governments. The GST is being looked up to the most significant tax reform in the country in terms of improving the indirect tax structure of India ever since the economy opened up about twenty five years ago, making it easier to opt for business finance. 

GST is targeted at removing all kinds of taxation barriers between states and the creation of a single market which is open to all to buy, sell, import, and export within the country. The common man has benefited from this biggest tax reform as all the taxes are directly collected at the point of consumption. To put things in perspective, say a manufacturer of shirts buys raw materials to weave a cloth- thread, button, tailoring equipments, that cost Rs. 100 and that includes a tax of Rs. 10. The VAT added to him was Rs. 300. Thus, the gross value of the shirt now turns Rs. 130 and the tax on output will be Rs. 13. However, under GST, he can do away with this tax of Rs. 13 as he has already paid on raw material and input of Rs.10. Therefore, the effective GST incidence on the manufacturer is only Rs. 3 (Rs. 13-10).

Also Read: How GST Works for Businesses

The next stage involves the product moving from manufacturer to wholesaler, and then to a service provider. The wholesaler would add another Rs. 20 for his profit thus bringing the value of the product to Rs. 150. The tax would come to Rs. 15 but effectively the ultimate GST incidence on the wholesaler is only Rs. 2 (15-13).

Following this, the retailer adds a margin of Rs. 10 when the buys from the wholesaler. Thus the price will go up to Rs. 160 and the tax to Rs. 16. By setting off this tax of Rs. 16 against the tax on his purchase from the wholesaler (Rs. 15), the retailer brings down the effective GST incidence on himself to Rs. 1 (16-15). Though the GST calculation is a little complex but don´t worry, you can use the online GST calculator to make the calculation easier.