GST Merits Demerits Goods Services Tax Explained

  • GST Vs Current Tax structure:
  • Cascading Effect in GST:
  • GST Explained with an Example:
  • Benefits of GST
  • Few Considerations in GST:
  • Issues in GST
  • GST Merits
  • How will GST benefit Companies?
  • The need for Goods and Services Tax

GST Goods and Services Tax India Meaning Explained here. Difference between the new GST and Service Tax. What are the benefits and merits of GST. Here we are providing the complete details about Goods and Services Tax introduced by the Indian Government recently. We will also discuss what is GST Credit, Why was it launched and other related matters.

GST was being opposed by different state governments but finally it was made applicable. Now State governments will get a part of GST Tax from the central Government.

GST Vs Current Tax structure:

The difference between GST and the current Tax structure can be easily understood from the following diagram:

GST VS Current Tax rates

Cascading Effect in GST:

Say Mr.X sells goods to Mr.Y after charging sales tax, and then Y re-sells those goods to Z after charging sales tax. While Y was computing his sales tax liability, he also included the sales tax paid on previous purchase, which is how it becomes a tax on tax.

Cascading Effect in GST

GST Explained with an Example:

See the below picture and the example referring how GST is beneficial:

GST Explained with an Example

Benefits of GST

The implementation of GST will help create a common market in India and reduce the cascading effect of tax on the cost of goods and services. It will impact tax structure, tax incidence, tax computation, credit utilization and reporting, leading to a complete overhaul of the current indirect tax system.

Few Considerations in GST:

Under the Bill, alcoholic liquor for human consumption is exempted from GST. Also, it will be up to the GST Council to decide when GST would be levied on various categories of fuel, including crude oil and petrol.

The Centre will levy an additional one per cent tax on the supply of goods in the course of inter-State trade, which will go to the States for two years or till when the GST Council decides.

The primary reason for the bill is to pave the way for the Centre to tax sale of goods and the states to tax provision of services. The bill further proposes that the central government will have the exclusive power to levy GST on imports and inter-state trade.

Issues in GST

GST will not be a cost to registered retailers therefore there will be no hidden taxes and the cost of doing business will be lower. This in turn will help Export being more competitive.

In GST System bothe Central GST and State GST will be charged on manufacturing cost and will be collected on point of sale. This will benefit people as prices will come down which in turn will help companies as consumption will increase.

Critics say that GST would impact negatively on the real estate market. It would add up to 8 percent to the cost of new homes and reduce demand by about 12 percent.

GST Merits

Biggest benefit will be that multiple taxes like octroi, central sales tax, state sales tax, entry tax, license fees, turnover tax etc will no longer be present and all that will be brought under the GST. Doing Business now will be easier and more comfortable as various hidden taxation will not be present.

How will GST benefit Companies?

It will be beneficial for Indian companies.  as the average tax burden on companies will fall. Reducing production  costs will make exporters more competitive and aggressive. “The most important reform  for India, whether it is for our group, for India generally, or for most  businesses, will be the goods and services tax. It will add about two  percentage points … to India’s GDP growth,” Rahul Bajaj, chairman of  the Bajaj Group, told Reuters in November 2012.

The need for Goods and Services Tax

We begin by elaborating on the important concept of – cascading effect of taxes. It is also, logically, referred to as “taxes on taxes”. It is simple to illustrate – say A sells goods to B after charging sales tax, and then B re-sells those goods to C after charging sales tax. While B was computing his sales tax liability, he also included the sales tax paid on previous purchase, which is how it becomes a tax on tax.


14 Replies to “GST Merits Demerits Goods Services Tax Explained”

  1. Ajith says:

    Under GST, in no service oriented items are also charges in GST Rates.
    Then how that type of business concern extracted from High Tax Burden/

  2. k.harish says:

    i support this GST bill. the tax burden is very low. this is help to fast economic growth

  3. k.harish says:


  4. cm says:

    All are highlighting the benefits. But nobody has shown how dealer will have to comply. There are 2 or 3 types of GST and what as a trader/manufacturer should know is its compliance. Indian laws tend to be more cumbersome and require tedious filing. The world over, there is only one GST while we are talking of 2 or 3. Even nobody has explained how filings will be done and what about interstate transactions – like do we need C form or other such document.

  5. Mohit Kumar says:

    Its good for the our economy .

  6. Deepak Jha says:

    I like gst and very good economy


    there is large number of small traders and they should not affect by GST

  8. Eldho Johnson says:

    How GST will benefit the service Industry ?

    1. Admin says:


      The below site search link will help you. Please take some time out to learn about the same. Hope this site provides enough material to gain answer to the question you are looking for. Good luck !!

      Service Sector

      1. Nimisha says:


        I wanted to know how much will the service charge on sales to foreign companies be? And how much will the tax on clothing be under GST?

        Thank you.

        1. Anonymous says:


  9. Naveen Singhal says:

    I want to know & talk about GST

  10. joykanti dandapat says:

    plz support GST bill bkz coruppation is very high at jamsola unified check gate in ODISHA….. RTO, SALE TAX, all commercial dept. corropate………………………….

  11. Gnanasekaran says:

    Chit Funds one of the Indigenous Industry born in India should be exempted from GST, since all the Financial Institutions are exempted.

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