Which of the following pairs is correctly matched?

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Cascading of tax – tax charged on the total value of a good, including taxes already paid on its inputs

Tax on a value that already includes the taxes paid on inputs is cascading: a tax on tax.

Option (1) Destination based tax – tax collected in the state where the good is produced — Incorrect. A destination based tax goes to the place where the good is consumed, the destination, not where it is made.

Option (2) GST – a direct tax charged on the income earned by the suppliers of goods — Incorrect. GST is an indirect tax on the supply of goods and services.

Option (3) Cascading of tax – tax charged on the total value of a good, including taxes already paid on its inputs — Correct. Before GST, tax fell on the total value at each stage.

Option (4) Input Tax Credit – credit of tax paid at the next stage of supply is set off at the previous stage — Incorrect. It runs the other way: tax paid at the previous stage is set off at the next stage.

NCERT (2026-27): “Box 5.3: GST: One Nation, One Tax, One Market Goods and Service Tax (GST) is the single comprehensive indirect tax, operational from 1 July 2017, on supply of goods and services, right from the manufacturer/ service provider to the consumer. It is a destination based consumption tax with facility of Input Tax Credit in the supply chain. … As there have been a number of intermediate goods/services, which were manufactured/provided in the economy, the pre GST tax regime imposed taxes not on the value added at each stage but on the total value of the commodity/service with minimal facility of utilisation of Input Tax Credit (ITC). The total value included taxes paid on intermediate goods/services. This amounted to cascading of tax. Under GST, the tax is discharged at every stage of supply and the credit of tax paid at the previous stage is available for set off at the next stage of supply of goods and/or services. …”