An illustration on GST

 


This table demonstrates how GST removes the cascading effect by allowing input tax credit (ITC) at every stage of the supply chain, ensuring tax is levied only on value addition. Let’s break it down step by step:

 Supply Chain Stages and GST Flow

Stage

Details

Explanation

1. Manufacturer

- Cost of production: ₹1,00,000 - GST @ 18% = ₹18,000 - Selling price to distributor = ₹1,18,000

Manufacturer adds ₹1,00,000 value and collects ₹18,000 as GST. He pays the full ₹18,000 to the government since there's no input credit.

2. Distributor

- Purchase price = ₹1,00,000 - Profit = ₹11,200 - Sale price = ₹1,11,200 - GST @ 18% = ₹20,016 - Input Tax Credit = ₹18,000 - GST Payable = ₹2,016

Distributor adds value of ₹11,200. GST on that value = ₹2,016 He collected ₹20,016 from the retailer but uses ₹18,000 ITC, so pays only ₹2,016 to govt.

3. Retailer

- Cost = ₹1,11,200 - Profit = ₹24,640 - Sale Price = ₹1,35,840 - GST @ 18% = ₹24,451.20 - ITC = ₹20,016 - GST Payable = ₹4,435.20

Retailer adds ₹24,640 value. GST on that value = ₹4,435.20 Uses ITC of ₹20,016, and pays only the GST on added value.

4. Consumer

- Final Price = ₹1,60,291.20 (₹1,35,840 + ₹24,451.20 GST)

The consumer bears the full tax, but each stage only pays tax on their value addition, not on the entire previous cost.

 How Cascading Effect Is Removed

Without GST or input tax credit, each tax would apply to the full value, including previously taxed amounts. That would result in:

·         Tax on cost + tax

·         Final prices rising steeply

·         Hidden taxes at each level

 But with GST:

·         Every business claims credit for the GST they already paid

·         Only value addition is taxed

·         There’s no double taxation

·         The final burden is clearly visible and borne only by the consumer

 Total Tax Paid to Government = ₹18,000 + ₹2,016 + ₹4,435.20 = ₹24,451.20

 Which is the GST on the total value addition of ₹1,35,840
 ₹1,35,840 × 18% = ₹24,451.20

 Conclusion

This example shows that GST completely eliminates the cascading effect through:

·         Seamless flow of input tax credit

·         Taxation only on value addition

·         Transparency in tax liability

Would you like this converted into a visual infographic, animated slide, or a chalkboard-style explanation for your students?

 

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