By Pritesh Khare

When the Goods and Services Tax (GST) was introduced in India, it was sold as a reform that would simplify taxation, reduce prices, and unify the country into “one market.” Years later, GST still dominates dinner-table debates, business WhatsApp groups, and budget discussions — not because it failed, but because most Indians never truly understood how it actually works.

GST, at its core, is not complicated. The confusion lies in its execution, not its philosophy.

The Fundamental Idea Behind GST

GST is built on one simple principle: tax only the value added at each stage of production or sale.

Before GST, India’s indirect tax system was layered. A product was taxed at the manufacturing stage, taxed again during sale, and sometimes taxed yet again when it crossed state borders. This created a “tax on tax” effect, inflating prices and encouraging inefficiency.

GST replaced this tangled structure with a single system where tax flows smoothly from manufacturer to consumer — without duplication.

The Real Engine of GST: Input Tax Credit

The most important — and most misunderstood — part of GST is Input Tax Credit (ITC).

Under GST, businesses do not pay tax on the entire value of a product. They pay tax only on the additional value they create.

If a manufacturer pays GST while buying raw materials, that tax becomes a credit. When the manufacturer sells the finished product and collects GST, the earlier tax paid is adjusted. The same logic applies to wholesalers and retailers.

By the time a product reaches the consumer, the government has collected tax at every stage — but without taxing the same money twice.

In effect, the entire tax burden rests with the final consumer, not the business chain.

Why There Are Multiple GSTs

A common question is: if GST is “one tax,” why do we have CGST, SGST, and IGST?

The answer lies in India’s federal structure.

• CGST goes to the Central Government
• SGST goes to the State Government
• IGST applies to inter-state transactions and is later shared

When a product is sold within a state, CGST and SGST are charged. When it crosses state borders, IGST applies. This mechanism ensures states do not lose revenue in a unified tax system.

GST Is a Consumption Tax — Not a Production Tax

One of GST’s quiet but powerful shifts is that it is consumption-based.

Tax revenue goes to the state where goods or services are consumed, not where they are manufactured. This has altered revenue dynamics between manufacturing-heavy states and consumption-heavy states, making GST as much a political reform as an economic one.

Then Why Does GST Feel So Burdensome?

If the logic is so clean, why does GST feel overwhelming?

The answer lies in compliance.

GST depends heavily on invoice matching and digital reporting. Sellers upload invoices, buyers claim credits, and the system cross-verifies everything. If one link breaks, credit is denied.

This has increased transparency and reduced tax evasion — but it has also:

• Increased paperwork
• Penalised small businesses with limited resources
• Made compliance technology-driven in an economy still partly informal

GST didn’t just change taxation. It forced India’s cash-heavy economy to slowly formalise.

Who Really Pays GST?

Despite popular belief, businesses do not “pay” GST.

They collect it, adjust it using credits, and deposit the balance. The consumer, at the end of the chain, bears the full cost.

This distinction matters — because public anger is often misdirected at shopkeepers and service providers, when the structure itself places the burden elsewhere.

The Larger Truth About GST

GST is neither a magic wand nor a failed experiment.

It is a structurally sound reform implemented in a complex, diverse economy where:

• Income levels vary sharply
• Digital readiness is uneven
• Policy changes are frequent

GST simplified India’s tax philosophy, but not India’s tax experience.