What happened to the previous tax system

GST goal to simplify tax rule in India with one proverb ‘One Nation, One Tax’. Previously India has so many taxes, anciently the tax burden on tax payer was high. From GST onwards, tax burden has reduced significantly since all taxes are integrated, and the burden is split equally between manufacturers and services.

See below example how differ GST than previous tax

Non-GST

1) A car manufacturer company buys raw materials worth RS.80,000(include a tax of 10,000).

2) Manufacturer added a value Rs.30,000 to ready the car, Now its gross value is Rs.1,10,000.

3) Just take A tax rate of 10% manufacturer will have to pay Rs.11,000 as tax. So the car was sold to wholesaler at Rs.1,21,000(1,10,000+11,000).

4) Wholesaler added a Rs.15000 to the car now car price is Rs.1,36,000(1,21,000+15,000).

5) For wholesaler 10% tax added to that car now car comes to Rs.1,49,600(1,36,000+13,600).

6) Retailer buys car at Rs.1,49,600 and adds his margin of Rs.10000 now car is 1,59,600.

7)For retailer tax 10% added on that car Now Final car price is Rs.1,69,600(Rs.1,59,600+10,000)

8) Totally tax paid is Rs.44,600(10,000+11,000+13,600+10,000).

 

GST

1) A car manufacturer company buys raw materials worth RS.80,000(include a tax of 10,000).

2) Manufacturer added a value Rs.30,000 to ready the car, Now its gross value is Rs.1,10,000.

3) Just take A tax rate of 10% manufacturer will have to pay Rs.11,000 as tax. But before manufacturer pays 10,000 for raw material so effective tax will be RS.1000(11,000-10,000).So the car was sold to wholesaler at Rs.1,10,100.

4) Wholesaler added a Rs.15000 to the car now car pice is Rs.1,25,100(1,10,100+15,000).

5) For wholesaler 10% tax added to that price so tax is Rs.12510. But before manufacturer pays 11,000 so effective tax will be RS.1,510(12,510-11,000). so car now car comes to Rs.1,26,610(1,25,100+1,510).

6) Retailer buys car at Rs.1,27,610 and adds his margin of Rs.10000 now car is Rs.1,36,610.

7) For retailer tax 10% added on that so tax is Rs.13661. But before manufacturer pays 12,510 so effective tax will be RS.1,151(13,661-12,510).Now Final car price is Rs.1,37,761(Rs.1,36,610+1,151)

8) Totally tax paid is Rs.13,661(10,000+1,000+1,510+1,151)

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