Why GST is needed?
One can explain the impact of cascading taxes with an example. Say A sells goods to B after charging sales tax, and then B re-sells those goods to C after charging sales tax. In this case while B was computing its sales tax liability, it also included the sales tax paid on previous purchase, which is how it becomes a tax on tax. This is also referred to as taxes on taxes. This is where the need for GST arises to do away with the phenomenon.
Goods and Services Tax better known as GST in India, is a new and comprehensive tax to be levied on sales, manufacturing and consumption of services and goods across the nation. Referred to as one of the biggest tax reforms in the country, GST is expected to bring together state economies and improve overall economic growth of the nation.
Both the Central as well as State governments are set to impose GST on all services and goods produced, manufactured and imported in India. Exports are not subject to GST. As of now, the proposal is for two tax rates at both State and Central levels for the initial two years, which would be merged into a single tax rate in the all third financial year.