What is the Difference Between GST and VAT

Updated on July 18, 2022

Goods and Services Tax (GST), which replaced the Central and State indirect taxes like VAT, excise duty, and service tax on July 1, 2017, has been introduced.

Understanding the distinctions between VAT and GST and their ramifications is the goal of this article. The cascading effect of taxes on the economy has been reduced by the GST.

Cascading effect of a tax is a synonym for

Every time a product is sold, there’s a tax charged on top of tax, which is known as the “cascading impact.” Because the prior buyer had already paid tax, the final consumer is forced to pay “tax on already paid tax” when he or she buys a product. To better comprehend the influence of the Value Added Tax (VAT) on the Indian economy, let’s look at what it is and how it works.

Watch this video to learn about the cascading implications of the former tax structure:

What is VAT tax?

On April 1, 2005, the Value Added Tax (VAT) was implemented in India as an indirect value added tax.

This tax is a consumption tax that is paid on a commodity at any stage in the supply chain, from production to sale.

Product cost minus any already taxed costs of products utilized in the product is used to determine the amount of VAT that consumers pay.

Vat has taken the place of Sales Tax as a taxing idea. The purpose of implementing VAT was to unify the market in India.

See also  VAT Calculator

State legislatures, on the other hand, were the ones who first enacted the law. Except for the Andaman and Nicobar Islands and the Lakshadweep Islands, all Indian states and union territories implemented VAT on June 2, 2014.

CST, or Central Sales Tax, was applied on interstate supplies. On the sale of commodities imposed by the central government, CST is applicable. According to the laws of that state, it is collected and held by them.

VAT’s Drawbacks

Effects of taxation that cascade

Under VAT, no Input Tax Credits (ITC) could be claimed for services.

Different states have different rates of value added tax (VAT).

Every state has a different VAT policy.

No adjustments can be made to CST or VAT when they are entered.

What advantages does GST have over VAT?

Because it’s intended to serve as a single comprehensive taxation idea, the Goods and Services Revenue (GST) unifies tax collection across the country. Indian taxation has been transformed by the introduction of GST. “Tax on tax” would be eliminated even further with the introduction of GST.

advantages of implementing GST

Elimination of the tax cascade

Effortless online process

Compliance requirements are lower.

E-commerce firms receive special consideration.

Consider the following example:

Assume you’re a consultant who’s working with a group of people.

In a VAT framework, the consultant would have been required to levy a service tax of 15% on the Rs 70,000 in services provided.

As a result, his production tax was Rs. 70,000 multiplied by a 15% rate, which amounted to Rs. 10,500.

Then, if he spent Rs. 25,000 on office supplies, he would pay Rs. 25,000 x 5% = Rs. 1,250 in VAT. Despite having already paid 1,250 rupees in VAT on stationery, he was still required to pay Rs. 10,500 in output service tax. It costs him Rs. 11,750 in taxes altogether.

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GST on a service of Rs. 70,000 at a rate of 18 percent is Rs. 12,600. Subtract Rs. 1,250 from Rs. 25,000 by multiplying by the GST rate of 5 percent on office goods.

As a result, you owe GST of Rs. 11,350.


The elimination of the cascading tax structure and the simplification of the business process in India is a result of the implementation of GST on goods and services.

Everything you need to know about the GST may be found here.

A comprehensive guide to the GST

E-learning courses on the GST are popular.

2020 GST Training

The 2017 GST Course

Find the HSN code and rate

GSTIN Database Search

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