Everybody is talking of removal of cascading effect in GST,. So what does Cascading effect mean and how does its removal help?
To understand how removal of cascading effect helps lets analyse an example with the present taxation regime and the GST regime.
#1: Present taxation regime:
|Excise Duty @ 10%||100|
|VAT @ 14%||154|
Cascading effect happens when VAT (an indirect tax) is levied not only the product value but also on the Excise Duty (also an indirect tax).
#2: GST regime:
|Central GST @ 12%||120|
|State GST @ 12%||120|
In both the cases the tax rate is assumed at 24% [10% ED + 14% VAT] in present regime and 24% [12% CGST +12% SGST] in the GST regime, however there is a difference of Rs.14 on the bill total. This is the benefit of removing cascading effect in indirect taxation.