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Q.What do you understand by Goods and Services Tax (GST)? How is it superior to the old tax system? Explain.

Uttar Pradesh UpmspUP Board (UPMSP) Intermediate (Commerce) 2020Subjective· 10mImportance★★★★★
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GST is a single destination-based indirect tax on supply of goods and services; it is superior to the old system because it removes cascading, unifies the market, and improves compliance.

Meaning: Goods and Services Tax (GST) is a single, comprehensive, multi-stage, destination-based indirect tax levied on the supply of goods and services. It was introduced in India with effect from 1 July 2017 and replaced a large number of indirect taxes such as central excise duty, service tax, additional customs duty, state VAT/sales tax, entertainment tax, octroi and luxury tax. It is levied at every stage of the supply chain but with credit for the tax already paid at earlier stages, so the final burden falls on the ultimate consumer. GST in India has components: CGST (Central), SGST (State) and IGST (Inter-State).

Why GST is superior to the old (pre-GST) tax system:

  1. One Nation, One Tax, One Market — It replaced numerous central and state indirect taxes with a single tax, creating a unified common national market and removing barriers to the movement of goods between states.

  2. Removal of cascading effect (tax on tax) — Under the old system tax was levied on a value that already included earlier taxes, so tax was paid on tax. GST allows input tax credit at every stage, so tax is paid only on value addition; this lowers the overall tax burden and prices.

  3. Simplicity and uniformity — A common tax with common rates and procedures across the country is simpler than the earlier maze of different taxes and rates in different states.

  4. Transparency and less evasion — GST operates through an online portal (registration, returns, invoice matching), which improves transparency, widens the tax base and curbs tax evasion.

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