A comprehensive, destination-based indirect tax on the supply of goods and services, introduced in India on 1 July 2017, that replaced most central and state levies with a single system in which tax paid on inputs is credited against tax on outputs.
Before GST, India had a patchwork of indirect taxes. The Centre levied excise duty on manufacturing and service tax on services; states levied value added tax on sales, entry tax, octroi, luxury tax and more. Goods moving between states paid central sales tax, which could not be credited. Taxes were levied on taxes, which raised prices in hidden ways, and lorries queued for hours at state border checkposts. Economists called this "cascading" and a fragmented internal market.
The idea of a nationwide value added tax was discussed for years, from the Kelkar task force in 2004 to a 2006 budget announcement. Agreement between the Centre and states took more than a decade because states feared losing revenue and fiscal autonomy. The 101st Amendment in 2016 created the legal basis, and GST took effect at midnight on 1 July 2017. The institutional design and the Council are covered in the main lesson and the GST Council page; this page explains how the tax works and its economic effects.
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