GST: Cascading Effect

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:

 Sale Price         1,000
 Excise Duty @ 10%            100
 Sub Total         1,100
 VAT @ 14%            154
 Total         1,254

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:

 Sale Price         1,000
 Central GST @ 12%            120
 State GST @ 12%            120
 Total         1,240

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.

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