What is GST and how does it Work?

Goods & Services Tax is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition.

To understand the entire concept, we need to understand the terms that come under this definition:

Beginning with Multi-stage, There are several steps a product goes through during the period of manufacturing.  The first stage is the buying of raw materials. The next stage is production or manufacture. Next, is the warehousing of the materials. After this comes to the selling of the product to the retailer. In the last stage, the retailer sells you the end consumer the product.

Value Addition,  say for example that a manufacturer wants to make a shirt. For this, he needs to buy yarn. This gets turned into a shirt after the process manufacturing. Hence, the value of the yarn is increased when it gets woven into a shirt. Then, the manufacturer sells it to the warehousing agent who attaches labels and tags to each shirt. That is another addition of value after which the warehouse sells it to the retailer who packages each shirt separately and invests in the marketing of the shirt thus increasing its value.

Another term to talk about is Destination-Based. The Goods and Services Tax will be levied on all transactions taking place during the entire manufacturing chain. Previously, when a product was manufactured, the centre would levy an Excise Duty on the manufacture, and then the state added a VAT tax when the item would be sold to the next stage in the cycle. After that, there would be a VAT at the next point of sale. The new Goods and Services Tax will be levied at every point of sale.

This tax can only be carried out efficiently with the help of proper and strict guidelines and instructions. There are three kinds of applicable goods and services tax.

CGST: where the revenue will be collected by the central government

SGST: where the revenue will be collected by the state governments for intra-state sales

IGST: where the revenue will be collected by the central government for inter-state sales


Goods & Services Tax is going to have a two-pronged benefit. One, it will reduce the gushing effect of taxes, and second, by allowing input tax credit, it will reduce the burden of taxes and, hopefully, prices.

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Post Author: MaximumFacts Team

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