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purpose of gst

Anu radha (30 Points)

17 June 2018

what is meant by 'consumption based tax'?

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Vinod Babu (24191 Points)
Replied 17 June 2018

Consumption-based tax or a Destination-based tax is essentially a tax levied at the time of consumption. Since GST is a destination-based tax, all the SGST on the final product will be collected by the State in which it is consumed.

For example, if a product is being manufactured, supplied and consumed in Gujarat, then there is practically no difference in the taxation procedure under VAT and GST. Therefore, tax on the product will be collected by Gujarat itself.

However, if the place of production and the place of consumption of a product are different, then under GST, the tax being paid is distributed to the State where Goods and Services are finally consumed. For example, if a product is manufactured in Gujarat but is being supplied to Madhya Pradesh and consumed there, then the tax is distributed to the Madhya Pradesh where Goods and Services are finally consumed.