Based on following paragraph answer the question :

Goods and service tax is the single comprehensive indirect tax implemented on July 1, 2017. It is a destination based tax that has Input Tax Credit in the supply chain. GST is applicable throughout the country.

GST is considered the biggest tax reform since independence. It is implemented through $101^{th}$ Constitutional Amendment Act.

The aim of GST is to reduce the cost of business operations and cascading effect of various taxes. By implementing GST it is expected that GDP will rise by about 2%. Compliance will also be easier as all tax payment related services are available online through a common portal. GST has expanded the tax base and introduced higher transparency in the taxation system.

GST is destination based tax because :

It has input tax credit system

The correct answer is option (2) : It has input tax credit system

Note : The given answer is as per NTA. However, the correct answer should be Option 1- Tax calculated at final consumption as explained below:

Destination-Based Tax: This means the tax is collected by the state where the goods or services are consumed, rather than the state where they were manufactured or produced. Therefore, the tax liability is determined at the point of final consumption.

Why other options are incorrect:

• Option 2: Input Tax Credit (ITC) is a mechanism to avoid the cascading effect, but it does not define the "destination-based" nature of the tax.

• Option 3: While it is true that the burden is eventually borne by the final consumer, "levied on the final consumer" describes the nature of an indirect tax in general, not specifically why it is "destination-based."

• Option 4: Transparency is a benefit of the system, not a definition of how the tax is geographically or structurally applied.