Uninterrupted and seamless chain of Input Tax Credit (ITC) is a mechanism to avoid cascading of taxes in which of the following taxes?

Correct option is D

Correct Answer: (D) GST

Explanation:

• The Input Tax Credit (ITC) mechanism under the Goods and Services Tax (GST) system allows businesses to offset the tax they have paid on inputs against the tax they collect on outputs. This ensures an uninterrupted and seamless chain of ITC, preventing the cascading effect of taxes (tax on tax) and promoting ease of doing business.
• GST is designed to make the tax system transparent, efficient, and to avoid multiple layers of taxation on goods and services.

Information Booster:

• Cascading Effect: In a cascading tax system, taxes are levied on the price including previous taxes, which leads to higher prices. ITC in GST removes this issue by allowing businesses to claim a credit for the taxes paid on inputs.
• Benefits of ITC: This system promotes transparency, reduces the tax burden on businesses, and ensures that the final consumer pays the tax only on the value-added portion of goods or services.

Other Options:

• A (Angel tax): Angel tax is a tax imposed on investments in start-ups, and it is not related to the ITC mechanism.
• B (Equalisation levy): The equalisation levy is a tax on digital services, especially targeting non-resident companies, and does not involve ITC.
• C (Countervailing duty): Countervailing duty is a tariff or tax imposed on imported goods to counteract subsidies provided by the exporting country. It is not related to the ITC mechanism under GST.