An Analytical Study of the Input Tax Credit Mechanism under the Goods and Services Tax (GST) Regime and Its Role in Reducing the Cascading Effect of Taxes (With Special Reference to Vindhya Region of Madhya Pradesh)

The Goods and Services Tax (GST) introduced in India marked a major reform in the indirect taxation system with the objective of creating a unified tax structure and eliminating the cascading effect of taxes. A key feature of GST is the Input Tax Credit (ITC) mechanism, which allows taxpayers to offset taxes paid on inputs against their output tax liability, thereby ensuring value-added taxation. The present study analytically examines the effectiveness of the ITC mechanism under the GST regime and evaluates its role in reducing tax cascading and improving tax efficiency. The study adopts a descriptive and analytical research design using both primary and secondary data. Primary data were collected from 350 GST-registered traders and retailers of the Vindhya region through a structured questionnaire, while secondary data were sourced from government reports, GST legislation, and published research. Statistical tools such as percentage analysis, mean score analysis, correlation, regression, and ANOVA were employed using SPSS and Excel. The findings reveal that the ITC mechanism has significantly reduced the tax-on-tax effect and contributed to improved tax efficiency and cost reduction for businesses. However, procedural complexities, technological issues related to the GSTN portal, blocked credits, and delays in refunds continue to pose challenges, particularly for small taxpayers. The study concludes that while the ITC mechanism is conceptually robust, simplification of procedures, technological strengthening, and enhanced taxpayer awareness are essential to fully realize its benefits. The research provides valuable insights for policymakers, tax administrators, and business stakeholders in strengthening the GST framework in India.