# Concept of GST
## Definition
GST is a value-added tax on the supply of goods and services, including their manufacture and sale.
## Core Features
1. Value-added Tax: Tax is levied only on the value added at each stage of the supply chain.
2. Continuous Tax Credits: Credit flows seamlessly from producer/service provider to retailer/consumer.
3. Input Tax Credit (ITC) Mechanism: Suppliers can claim credit of GST paid on purchases (inputs) and offset it against GST payable on outward supplies.
4. Burden on Final Consumer: GST charged by the last supplier in the chain is ultimately borne by the final consumer.
5. No Cascading Effect: Tax is levied only on the incremental value addition at each stage — there is no 'tax on tax'.
## How the Value-Added Mechanism Works
At every stage:
- The supplier collects GST on the full sale price.
- He claims ITC of GST paid on his purchases.
- Net GST paid to government = GST on output minus ITC.
- This ensures tax is effectively paid only on the value added at that stage.
## Illustrative Supply Chain Example
| Stage | Cost | Value Added | Sale Price | GST @18% | ITC | Net GST to Govt |
|---|---|---|---|---|---|---|
| Manufacturer | 10,000 | 10,000 | 10,000 | 1,800 | NIL | 1,800 |
| Distributor | 10,000 | 1,120 | 11,120 | 2,001.60 | 1,800 | 201.60 |
| Retailer | 11,120 | 2,464 | 13,584 | 2,445.12 | 2,001.60 | 443.52 |
| Consumer | — | — | 16,029.12 | (bears 2,445.12) | NIL | — |
Total GST collected by government = 1,800 + 201.60 + 443.52 = ₹2,445.12 — equal to GST charged on final value (₹13,584 × 18%).
> Conclusion: The final consumer bears the entire tax burden of ₹2,445.12, while each intermediary remits only the tax on the value he added.