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.