Q.Source / Case Study based question. Read the following paragraph and answer the question given below : When the Goods and Services Tax (GST) was first introduced in 2017, it was considered a major tax reform in India since independence. It integrated several indirect taxes like excise, service tax and VAT into a single unified tax system. But with the passage of time, this tax system also needed to be changed. GST 1.0 included 5 major tax rates - 0%, 5%, 12%, 18% and 28% as well as additional cess on items such as luxury goods, tobacco and expensive cars. Though it was aimed at increasing revenue in an affordable manner, the GST 1.0 rates were criticised for being complex and putting an additional burden on small enterprises. Traders found it difficult to classify goods accurately, which often led to corrections and confusion. But GST 2.0 offers a streamlined tax system. The government has significantly reduced the number of rates and product categories for clarity. There are now rates of 0%, 5%, 18% and 40% for commodities. By eliminating the 12% rate and imposing a special higher rate of 40% on luxury goods, GST 2.0 removes ambiguity. It makes a clear distinction between necessities, simple and luxury goods. Essential items like butter, utensils, sewing machines and toothpaste will be cheaper. Now there will be no tax on rubber, notebooks, pencils, maps and health services. The new rates are effective from September 22, 2025. The revenue shortfall on account of rate cut will be around Rs. 93,000 crore but the revenue gain on luxury goods at the rate of 40% will be around Rs. 45,000 crore. Q: Give two examples of indirect taxes.
🔒You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.
🔒 Start your 14-day free trial to unlock the full solution →Concept understanding — Goods And Services Tax
Goods and Services Tax (GST)
Start with what you already know
Walk into any shop — a chemist, a mobile store, a restaurant — and look at your bill. At the bottom, you will see a line: GST @ 5% or GST @ 12% or GST @ 18%. That extra amount is not pocketed by the shopkeeper. It goes to the government. But why is there a separate tax called GST, and not just "sales tax" or "VAT" like before?
The answer lies in a simple problem: before GST, every state had its own tax system. A truck carrying goods from Maharashtra to Karnataka would be stopped at checkposts, pay entry tax, octroi, and state VAT — each time adding cost and delay. GST was designed to make India one unified market.
The precise meaning
Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based indirect tax levied on every value addition in the supply chain — from manufacture to final consumption.
Let me unpack each part of that definition.
Comprehensive — It replaced a dozen central and state taxes (excise duty, service tax, VAT, octroi, entry tax, luxury tax, etc.) with a single tax.
Multi-stage — A product passes through several stages: raw material → manufacturer → wholesaler → retailer → consumer. GST is collected at every stage where value is added.
Destination-based — The tax revenue goes to the state where the goods are consumed, not where they are produced. If a car is made in Gujarat but sold in Bihar, Bihar gets the GST.
Value addition — This is the key idea. A manufacturer buys steel for ₹100, pays 18% GST (₹18). He uses the steel to make a machine and sells it for ₹200. He collects 18% GST (₹36) from the buyer. But he does not pay ₹36 to the government — he pays only ₹18 (₹36 minus the ₹18 he already paid on steel). This is called Input Tax Credit (ITC).
Input Tax Credit is the heart of GST. It prevents "tax on tax" (cascading). Under the old system, a manufacturer paid tax on his inputs, then paid tax again on the full selling price — effectively taxing the tax. GST eliminates this.
How GST works: a simple chain
Imagine a wooden chair.
-
Logger sells timber to a furniture maker for ₹1,000. GST @ 18% = ₹180. Logger deposits ₹180 with the government.
-
Furniture maker uses the timber, adds value (labour, design), and sells the chair to a wholesaler for ₹2,000. GST on sale = ₹360. But he claims ITC of ₹180 (the tax he already paid on timber). He deposits only ₹180 (₹360 − ₹180).
-
Wholesaler sells to a retailer for ₹3,000. GST = ₹540. ITC = ₹360. Deposits ₹180.
-
Retailer sells to you, the consumer, for ₹4,000. GST = ₹720. ITC = ₹540. Deposits ₹180.
Total tax collected = ₹180 + ₹180 + ₹180 + ₹180 = ₹720 — exactly 18% of the final price ₹4,000.
Notice: the government collects the same total tax (₹720) whether it collects it in one lump from the retailer or in four small instalments from each stage. The difference is that everyone in the chain is incentivised to maintain proper invoices because they need ITC. This reduces tax evasion.
Why GST matters for the economy
Removed cascading — Earlier, a product bore "tax on tax". A study by the National Institute of Public Finance and Policy estimated that cascading added 25–30% to the final price of many goods. GST removed that.
Made India a common market — Before GST, a truck moving from Delhi to Chennai spent 60–70 hours at state borders in paperwork. After GST, interstate checkposts were dismantled. Logistics costs fell.
Increased tax base — Because every business wants ITC, they must file returns and show purchases from registered suppliers. This pulls informal businesses into the tax net.
Simplified compliance — Instead of filing separate returns for excise, service tax, and VAT, a business files one GST return.
The three-tier structure
GST in India is not a single rate. It has three components:
| Component | Levied by | Applies to |
|---|---|---|
| CGST (Central GST) | Central Government | Intra-state sales |
| SGST (State GST) | State Government | Intra-state sales |
| IGST (Integrated GST) | Central Government | Inter-state sales |
For a sale within the same state (say, a shop in Delhi selling to a customer in Delhi), the total GST is split equally: 9% CGST + 9% SGST = 18% total.
For a sale across states (Delhi to Mumbai), only IGST is charged (18%). The central government collects it and later transfers the state's share to Maharashtra (the destination state). …
Indirect taxes: GST and excise duty.
The passage mentions that GST integrated several indirect taxes like excise, service tax and VAT. So two examples of indirect taxes are GST (Goods and Services Tax) and excise duty (or …
Showing the 12 most recent of 21 on this concept.
- CBSE 2026Set MARCH1 markMCQQ.Which of the following is an example for 'Paper tax'?(a) a) Income tax(b) b) Excise tax(c) c) Customs duty(d) d) Wealth tax
›Reveal solutionSolution
A paper tax raises almost no revenue in practice; the classic example is (d) Wealth tax.
In Indian public finance, some direct taxes were imposed more for equity and appearance than for revenue. Because they collected very little and were difficult to administer, they were nicknamed 'paper taxes'. Wealth tax is the standard textbook example of such a tax.
…
- CBSE 2026Set ANNUAL1 markMCQQ.In which of the following years the Goods and Services taxes are implemented in India?(a) In 2006(b) In 2016(c) In 2017(d) In 2020
›Reveal solutionSolution
GST was implemented in India in 2017 — option (c).
The Goods and Services Tax (GST) — a single, comprehensive, destination-based indirect tax that replaced many central and state indirect taxes — came into force in India on 1 July 2017, real …
- CBSE 2026Set ANNUAL1 markQ.Which type of tax is income tax, Direct or Indirect?
›Reveal solutionSolution
Income Tax is a Direct Tax, since its burden cannot be shifted onto someone else.
The key distinction between Direct and Indirect taxes is whether the tax's burden can be SHIFTED from the person who legally pays it to someone else. Income Tax is levied on an individual's (or entity's) income, and the person who earns that income is both the one legally liable to pay the tax AND the one who ultimately bears its burden (reduced take-home income) — there is no mechanism by which this burden can be passed on to another party. This makes Income Tax a Direct Tax, …
- CBSE 2025Set ANNUAL1 markMCQQ.Which of the following is direct tax? (A) Wealth tax (B) Excise tax (C) Custom duty (D) Service tax
›Reveal solutionSolution
A direct tax's burden stays on the person taxed; wealth tax fits this, while the other three are indirect, so (A) is correct.
In the RBSE/CBSE Class-12 government-budget chapter, taxes are classified as:
- Direct tax — levied on and paid by the same person; the burden (incidence) cannot be shifted. Examples: income tax, corporate tax, wealth tax.
- Indirect tax — levied on goods and services; the seller passes the burden on to the buyer. Examples: excise duty, customs duty, service tax (now largely subsumed under GST). …
- CBSE 2025Set ANNUAL1 markQ.Carefully read the data of revenue receipts, taken from the budget summary of Government of India, and answer the questions given below. Revenue Receipts (In ₹ crore) Category | 2022-2023 Actuals | 2023-2024 Budget Estimates | 2023-2024 Provisional Actuals | 2024-2025 Budget Estimates
- Tax Revenue — Gross Tax Revenue | 3054192 | 3360858 | 3464792 | 3840170
(a) Corporation Tax | 825834 | 922675 | 911055 | 1020000(b) Taxes on Income | 833260 | 900575 | 1044726 | 1187000(c) Wealth Tax | -9 | ... | ... | ...(d) Customs | 213372 | 233100 | 233067 | 237745(e) Union Excise Duties | 319000 | 339000 | 305330 | 319000(f) Service Tax | 431 | 500 | 424 | 100(g) GST | 849133 | 956600 | 957032 | 1061899 CGST | 718523 | 811600 | 820622 | 910890 IGST | 4748 | ... | -5026 | ... GST Compensation Cess | 125862 | 145000 | 141436 | 151009(h) Taxes of Union Territories | 8711 | 8408 | ... | 9426(i) Other Taxes | 4460 | ... | 13158 | 5000 How much increase is estimated in Union Excise Duties, in the budget estimates of year 2024-25, as compared to actual receipts of year 2022-23?›Reveal solutionSolution
2024-25 BE Union Excise Duties (₹3,19,000 cr) equals 2022-23 Actuals (₹3,19,000 cr) — increase = ₹0.
From the given data table, Union Excise Duties figures are:
2022-23 Actuals: ₹3,19,000 crore
2023-24 Budget Estimates: ₹3,39,000 crore
2023-24 Provisional Actuals: ₹3,05,330 crore
2024-25 Budget Estimates: ₹3,19,000 crore
Comparing the two figures asked for: 2024-25 Budget Estimates (₹3,19,000 crore) minus 2022-23 Actuals (₹3,19,000 crore) = ₹0 crore. So, despite the figure rising to ₹3,39,000 crore in the 2023-24 Budget Estimate and then coming in lower at ₹3,05,330 crore in the 2023-24 Provisional Actuals, the 2024-25 Budget Estimate for Union Excise Duties has been set at e …
- CBSE 2025Set ANNUAL1 markQ.Carefully read the data of revenue receipts, taken from the budget summary of Government of India, and answer the questions given below. Revenue Receipts (In ₹ crore) Category | 2022-2023 Actuals | 2023-2024 Budget Estimates | 2023-2024 Provisional Actuals | 2024-2025 Budget Estimates
- Tax Revenue — Gross Tax Revenue | 3054192 | 3360858 | 3464792 | 3840170
(a) Corporation Tax | 825834 | 922675 | 911055 | 1020000(b) Taxes on Income | 833260 | 900575 | 1044726 | 1187000(c) Wealth Tax | -9 | ... | ... | ...(d) Customs | 213372 | 233100 | 233067 | 237745(e) Union Excise Duties | 319000 | 339000 | 305330 | 319000(f) Service Tax | 431 | 500 | 424 | 100(g) GST | 849133 | 956600 | 957032 | 1061899 CGST | 718523 | 811600 | 820622 | 910890 IGST | 4748 | ... | -5026 | ... GST Compensation Cess | 125862 | 145000 | 141436 | 151009(h) Taxes of Union Territories | 8711 | 8408 | ... | 9426(i) Other Taxes | 4460 | ... | 13158 | 5000 According to given data, what is the highest tax receipt in gross tax revenue of the budget estimates of the year 2024-25?›Reveal solutionSolution
Among all 2024-25 BE tax heads, Taxes on Income (₹11,87,000 crore) is the single highest.
From the given 2024-25 Budget Estimates column:
- Corporation Tax: ₹10,20,000 crore
- Taxes on Income: ₹11,87,000 crore
(d) Customs: ₹2,37,745 crore
(e) Union Excise Duties: ₹3,19,000 crore
(f) Service Tax: ₹100 crore
(g) GST (total): ₹10,61,899 crore
(h) Taxes of Union Territories: ₹9,426 crore
(i) Other Taxes: ₹5,000 crore
…
- CBSE 2025Set ANNUAL1 markQ.Carefully read the data of revenue receipts, taken from the budget summary of Government of India, and answer the questions given below. Revenue Receipts (In ₹ crore) Category | 2022-2023 Actuals | 2023-2024 Budget Estimates | 2023-2024 Provisional Actuals | 2024-2025 Budget Estimates
- Tax Revenue — Gross Tax Revenue | 3054192 | 3360858 | 3464792 | 3840170
(a) Corporation Tax | 825834 | 922675 | 911055 | 1020000(b) Taxes on Income | 833260 | 900575 | 1044726 | 1187000(c) Wealth Tax | -9 | ... | ... | ...(d) Customs | 213372 | 233100 | 233067 | 237745(e) Union Excise Duties | 319000 | 339000 | 305330 | 319000(f) Service Tax | 431 | 500 | 424 | 100(g) GST | 849133 | 956600 | 957032 | 1061899 CGST | 718523 | 811600 | 820622 | 910890 IGST | 4748 | ... | -5026 | ... GST Compensation Cess | 125862 | 145000 | 141436 | 151009(h) Taxes of Union Territories | 8711 | 8408 | ... | 9426(i) Other Taxes | 4460 | ... | 13158 | 5000 How much is the reduction in service tax in budget estimates 2024-25 as compared to the budget estimates of year 2023-24?›Reveal solutionSolution
2023-24 BE Service Tax (₹500 cr) − 2024-25 BE Service Tax (₹100 cr) = ₹400 crore reduction.
From the given data table, Service Tax figures are:
2022-23 Actuals: ₹431 crore
2023-24 Budget Estimates: ₹500 crore
2023-24 Provisional Actuals: ₹424 crore
2024-25 Budget Estimates: ₹100 crore
…
- CBSE 2025Set ANNUAL1 markQ.Fill in the blank with the correct answer : The full form of GST is ________.
›Reveal solutionSolution
GST (Goods and Services Tax) is a single, comprehensive indirect tax levied on the supply of goods and services across India, replacing a host of earlier central and state indirect taxes (excise duty, VAT, service tax, etc.).
- GST = Goods and Services Tax, introduced in India with effect from 1 July 2017.
- It is a single, destination-based, multi-stage indirect tax levied on the supply of goods and services, subsuming earlier taxes like central excise duty, service tax, VAT, octroi, and various state-level levies. …
- CBSE 2024Set 58/3/11 markMCQQ.Read the following statements : Assertion (A) and Reason (R). Choose the correct alternative given below : Assertion (A): Goods and Services Tax (GST) was implemented by the Government of India on 8th November, 2016. Reason (R): GST was introduced to implement a unified indirect tax system in India. Alternatives : (A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of the Assertion (A). (B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A). (C) Assertion (A) is true, but Reason (R) is false. (D) Assertion (A) is false, but Reason (R) is true.
›Reveal solutionSolution
The Assertion is factually wrong about the date of GST implementation, while the Reason correctly states the purpose of GST. Therefore, the correct choice is (D).
The question tests your grasp of two things: the exact date of a major tax reform and the core reason behind it. Let’s take them one at a time.
Assertion (A) claims that GST was implemented on 8th November, 2016. That date is actually famous for a different event — the demonetisation of ₹500 and ₹1000 notes. GST, on the other hand, was rolled out much later. The Goods and Services Tax came into effect across India on 1st July, 2017, after a long legislative journey that began with the 101st Constitutional Amendment Act, 2016. So the date given in the Assertion is incorrect.
NoteThe confusion often arises because both demonetisation and GST were major economic reforms announced by the same government in quick succession, but they are separate events with different dates.
Reason (R) states that GST was introduced to implement a unified indirect tax system in India. This is entirely accurate. Before GST, India had a complex web of central and state taxes — excise duty, service tax, VAT, octroi, and many more — each with its own rules, rates, and compliance burdens. GST replaced all these with a single, nationwide tax on the supply of goods and services, based on the principle of ‘one nation, one tax’. Its goal was to eliminate the cascading effect of taxes (tax on tax), simplify compliance, and create a seamless national market. …
- CBSE 2024Set ANNUAL1 markMCQQ.(vi) The example of paper tax is - A) Excise tax B) Customs duties C) Service tax D) Wealth tax
›Reveal solutionSolution
A paper tax raises negligible revenue even though it is legally levied; wealth tax is the classic Indian example, so the answer is D.
The term 'paper tax' describes a tax that is imposed by law but collects so little that it exists mostly 'on paper'. In India, wealth tax yielded a very small amount relative to collection costs and was eventually abolished, making it the textbook example of a paper t …
- CBSE 2023Set ANNUAL1 markMCQQ.Who imposes Income Tax?(a) Central Government(b) State Governments(c) Local Governments(d) All of these
›Reveal solutionSolution
Income tax in India is imposed by the Central Government, so the answer is (a).
Income tax is a direct tax levied on the income of individuals, firms and companies. Under the Indian Constitution, the power to levy and collect income tax (other than on agricultural income) rests with the …
- CBSE 2023Set ANNUAL1 markQ.Fill in the blank: Standard rates of GST are ______.
›Reveal solutionSolution
The standard GST rates are 5%, 12%, 18% and 28% (0% for exempt items).
The Goods and Services Tax (GST) in India is levied at a few standard slab rates fixed by the GST Council: 5%, 12%, 18% and 28%, besides a 0% (nil) rate on essential and exempted goods. Most goods and services fall in the 5%–18% range, while luxury and 'sin' goods attract 28% (sometimes with an additio …
🎓Unlock everything free for 14 days
- ✓Full step-by-step solutions
- ✓Concept-first explanations
- ✓Methods, shortcuts & mistakes
- ✓PYQ mapping + timed mock tests
Full access for 14 days. No credit card required.