GST in India
How GST Works: Value Added at Each Stage
GST is collected at every stage but businesses claim credit for tax already paid, so tax falls on the value they add.
The clever part is the credit system.
Value added
At each stage, a business pays tax on its sales but subtracts the tax it paid on purchases.
Example
A manufacturer buys material with tax paid, sells the product with tax charged and pays only the difference.
The final buyer
The consumer at the end bears the tax, since no one further can claim credit.
Why credit matters
It prevents tax on tax and encourages businesses to buy from registered suppliers.
A chain
A farmer sells wheat, a miller sells flour, a bakery sells bread, and each pays tax only on the value it adds.
Believing businesses bear GST
In principle, consumers bear it.
Key takeaways
- GST is charged at each stage.
- Input tax credit avoids cascading.
- Businesses pay only on value added.
- Consumers bear the final tax.
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