{"id":925,"date":"2021-06-25T09:12:21","date_gmt":"2021-06-25T09:12:21","guid":{"rendered":"https:\/\/www.kanakkupillai.com\/new-learn?p=925"},"modified":"2025-05-30T17:00:48","modified_gmt":"2025-05-30T11:30:48","slug":"how-new-taxation-system-of-gst-works-in-india","status":"publish","type":"post","link":"https:\/\/www.kanakkupillai.com\/learn\/how-new-taxation-system-of-gst-works-in-india\/","title":{"rendered":"How New Taxation System of GST Works in India"},"content":{"rendered":"<p class=\"name post-title entry-title\" style=\"text-align: left;\"><a href=\"https:\/\/www.kanakkupillai.com\/online-gst-registration\"><strong>GST<\/strong><\/a> is a consumption-based tax levied on the sale, manufacture, and consumption of goods & services at a national level.<span style=\"font-size: 16px;\"> This tax will serve as a substitute for all indirect taxes levied by the state and central governments. Exports and direct taxes, such as income tax, corporate tax, and capital gains tax, will not be affected by GST. The New Taxation System of GST in India would apply to all goods, except crude petroleum, motor spirit, diesel, aviation turbine fuel, and natural gas. It would apply to all services, barring a few that are to be specified. With the increase of international trade in services, GST has become a global standard. The proposed tax system will take the form of \u201cdual GST,\u201d which is concurrently levied by the central and state governments.<\/span><\/p>\n<div class=\"entry\">\n<h2>Central Taxes subsumed under GST<\/h2>\n<ul>\n<li>Central Excise Duty (including additional excise duties)<\/li>\n<li>Service tax<\/li>\n<li>Additional customs duty (CVD)<\/li>\n<li>Special Additional Duty of Customs (SAD)<\/li>\n<li>Central surcharges and cesses<\/li>\n<\/ul>\n<h2>State Government Taxes are subsumed under GST<\/h2>\n<ul>\n<li>Value Added Tax<\/li>\n<li>Central Sales Tax<\/li>\n<li>Octroi and Entry Tax<\/li>\n<li>Purchase Tax<\/li>\n<li>Luxury Tax<\/li>\n<li>Taxes on lottery, betting & gambling<\/li>\n<li>State taxes and surcharges<\/li>\n<li>Entertainment tax<\/li>\n<\/ul>\n<h2>New Tax System Under GST :<\/h2>\n<p><strong>The primary reason for implementing GST is to eliminate the cascading effect of taxes.<\/strong><strong>\u00a0<\/strong><\/p>\n<p><strong>Stage 1:<\/strong><\/p>\n<ul>\n<li>Imagine a manufacturer of, say, shirts. He buys raw materials or inputs \u2014 such as cloth, thread, buttons, and tailoring equipment \u2014 worth Rs 100, a sum that includes a tax of Rs 10. With these raw materials, he manufactures a shirt.<\/li>\n<li>In the process of creating the shirt, the manufacturer adds value to the materials he started with. Let us take this value he said to be Rs 30. The gross value of his goods would, then, be Rs 100 + 30, or Rs 130.<\/li>\n<li>At a tax rate of 10%, the tax on output (this shirt) will then be Rs 13. However, under GST, he can set off this tax (Rs 13) against the tax he has already paid on raw materials\/inputs (Rs 10). Therefore, the effective GST incidence on the manufacturer is only Rs 3 (13 \u2013 10).<\/li>\n<\/ul>\n<p><strong>Stage 2:<\/strong><\/p>\n<ul>\n<li>The next stage is the transfer of goods from the manufacturer to the wholesaler. The wholesaler purchases it for Rs 130 and adds on value (which is basically his \u2018margin\u2019) of, say, Rs 20. The gross value of the goods he sells would then be Rs 130 + 20, or a total of Rs 150.<\/li>\n<li>A 10% tax on this amount will be Rs 15. But again, under GST, he can set off the tax on his output (Rs 15) against the tax on his purchased goods from the manufacturer (Rs 13). Thus, the effective GST incidence on the wholesaler is only Rs 2.<\/li>\n<\/ul>\n<p><strong>Stage 3:<\/strong><\/p>\n<ul>\n<li>In the final stage, a retailer buys the shirt from the wholesaler. To his purchase price of Rs 150, he adds a value, or margin, of, say, Rs 10. The gross value of what he sells, therefore, goes up to Rs 150 + 10, or Rs 160. The tax on this, at 10%, will be Rs 16. But by setting off this tax (Rs 16) against the tax on his purchase from the wholesaler (Rs 15), the retailer brings down the effective GST incidence on himself to Re 1 (16 \u201315).<\/li>\n<li>Thus, the total GST on the entire value chain from the raw material\/input suppliers (who can claim no tax credit since they haven\u2019t purchased anything themselves) through the manufacturer, wholesaler, and retailer is Rs 10 + 3 +2 + 1, or Rs 16.<\/li>\n<\/ul>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>GST is a consumption-based tax levied on the sale, manufacture, and consumption of goods &#038; services at a national level. This tax&#8230;<\/p>\n","protected":false},"author":1,"featured_media":1384,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[4303],"tags":[],"class_list":{"0":"post-925","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-licenses-government-registrations"},"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v20.1 (Yoast SEO v27.5) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>How New Taxation System of GST Works in India - Kanakkupillai<\/title>\n<meta name=\"description\" content=\"New Taxation System of GST Works in India would apply to all goods other than crude petroleum, motor spirit, diesel\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.kanakkupillai.com\/learn\/how-new-taxation-system-of-gst-works-in-india\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How New Taxation System of GST Works in India - Kanakkupillai\" \/>\n<meta property=\"og:description\" content=\"New Taxation System of GST Works in India would apply to all goods other than crude petroleum, motor spirit, diesel\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.kanakkupillai.com\/learn\/how-new-taxation-system-of-gst-works-in-india\/\" \/>\n<meta property=\"og:site_name\" content=\"Kanakkupillai Learn\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/kanakkupillaionline\/\" \/>\n<meta property=\"article:published_time\" content=\"2021-06-25T09:12:21+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-05-30T11:30:48+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.kanakkupillai.com\/learn\/wp-content\/uploads\/2019\/04\/gst-indua.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"600\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Kanakkupillai\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"How New Taxation System of GST Works in India - Kanakkupillai\" \/>\n<meta name=\"twitter:description\" content=\"New Taxation System of GST Works in India would apply to all goods other than crude petroleum, motor spirit, diesel\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/www.kanakkupillai.com\/learn\/wp-content\/uploads\/2019\/04\/gst-indua.jpg\" \/>\n<meta name=\"twitter:creator\" content=\"@Kanakkupillai7\" \/>\n<meta name=\"twitter:site\" content=\"@Kanakkupillai7\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Kanakkupillai\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.kanakkupillai.com\\\/learn\\\/how-new-taxation-system-of-gst-works-in-india\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.kanakkupillai.com\\\/learn\\\/how-new-taxation-system-of-gst-works-in-india\\\/\"},\"author\":{\"name\":\"Kanakkupillai\",\"@id\":\"https:\\\/\\\/www.kanakkupillai.com\\\/learn\\\/#\\\/schema\\\/person\\\/4c54ecd01c396c99702ed4cfa8905f73\"},\"headline\":\"How New Taxation System of GST Works in India\",\"datePublished\":\"2021-06-25T09:12:21+00:00\",\"dateModified\":\"2025-05-30T11:30:48+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.kanakkupillai.com\\\/learn\\\/how-new-taxation-system-of-gst-works-in-india\\\/\"},\"wordCount\":558,\"publisher\":{\"@id\":\"https:\\\/\\\/www.kanakkupillai.com\\\/learn\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/www.kanakkupillai.com\\\/learn\\\/how-new-taxation-system-of-gst-works-in-india\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/www.kanakkupillai.com\\\/learn\\\/wp-content\\\/uploads\\\/2019\\\/04\\\/gst-indua.jpg\",\"articleSection\":[\"Licenses &amp; 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