# Need for GST in India
The pre-GST indirect tax regime had several deficiencies which made the introduction of GST necessary.
## Deficiencies in the Earlier System
### 1. Double Taxation
Certain items (e.g., software) were taxed as both goods (VAT) and services (Service Tax) — leading to double taxation.
### 2. Cascading of Taxes (Tax on Tax)
CENVAT load was not removed when state-level VAT was computed. VAT was charged on a value that already included excise duty.
Illustration:
| Particulars | Amount (₹) |
|---|---|
| Assessable value (Excise) | 1,000.00 |
| Excise duty @ 12.5% | 125.00 |
| Taxable value for VAT | 1,125.00 |
| VAT @ 14.30% | 160.88 |
| Total invoice value | 1,285.88 |
> Notice: VAT was being charged on ₹1,125 (including excise) — creating a tax on tax.
### 3. No Cross-Credit Between CENVAT and State VAT
CENVAT (Central) and State VAT credits could not be set off against each other.
### 4. State-Level Taxes Outside VAT
Several State-level taxes — such as luxury tax and entertainment tax — were not subsumed into VAT.
### 5. No Integration of Goods and Services
State-level VAT was charged on goods alone and was not integrated with the tax on services.
### 6. Exclusion of Services from State Tax Base
States could not tax services, which reduced their tax buoyancy (revenue-raising capacity).
### 7. Issues with CST (Central Sales Tax)
- Caused tax distortion due to its cascading nature.
- Non-VATable — no input credit allowed.
- Being an origin-based tax, it violated the principle that tax should accrue to the jurisdiction of consumption.
## How GST Addresses These
- Single tax on supply of goods/services → eliminates double taxation.
- Seamless ITC across the chain → removes cascading.
- Integration of goods + services + Centre + State taxes.
- Destination-based taxation → revenue accrues to the consuming State.