Check sibling questions
Indirect Tax
Vat

What is Cascading of tax?

Cascading of tax means tax on tax or double taxation

 

How does VAT prevent Cascading of tax?

Before VAT, Sales Tax was applicable

Sales tax was charged on each stage.

Input was not available on tax already paid at earlier stage

This was called cascading of tax as it amounted to tax on tax.

 

In VAT, input or credit of tax at previous stage is available. Hence, tax is imposed only on value addition at each stage.

Hence, we can say that VAT avoids cascading of taxes.

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CA Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 12 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.