What is GST?
Goods and Services Tax (GST) is India's unified indirect tax that replaced a complex web of central and state taxes (VAT, Service Tax, Excise Duty, CST, etc.) on 1 July 2017. GST is a destination-based, multi-stage tax applied at each point of value addition in the supply chain.
The final consumer bears the cost of GST. Businesses collect GST on behalf of the government and can claim credit for GST paid on their inputs (called Input Tax Credit or ITC).
India's Four GST Rate Slabs
| GST Rate | Category | Examples |
|---|---|---|
| 5% | Essential goods & services | Packaged foods, economy class air travel, household edible oils, fertilisers |
| 12% | Standard goods | Butter, cheese, frozen meat, mobile phones, computers |
| 18% | Most services & goods | Restaurant meals, hotel stays (₹1,000–₹7,500/night), financial services, IT services, most manufactured goods |
| 28% | Luxury & sin goods | Cars (above ₹10L), motorcycles (above 350cc), tobacco, aerated beverages, casinos |
Additionally, 0% (nil-rated) applies to fresh vegetables, grains, milk, eggs, newspapers, and many essential food items. Some items are exempt from GST entirely (e.g., healthcare services, educational services).
CGST, SGST, and IGST — What's the Difference?
GST is collected in three components depending on the type of transaction:
- CGST (Central GST): Collected by the Central Government on intra-state transactions. Equals half the total GST rate. E.g., for 18% GST, CGST = 9%.
- SGST (State GST): Collected by the State Government on the same intra-state transaction. Also equals half the rate. For 18% GST, SGST = 9%.
- IGST (Integrated GST): Collected by the Central Government on inter-state transactions (goods or services crossing state lines). Equals the full GST rate. For 18%, IGST = 18%.
For example, if you buy a laptop in Maharashtra (within the state), you pay CGST 9% + SGST 9% = 18%. If a dealer in Maharashtra ships the same laptop to a customer in Karnataka, it attracts IGST 18% instead.
GST Inclusive vs Exclusive — The Key Difference
GST Exclusive (Add GST): The price shown does not include GST. GST is added on top. Common in B2B invoicing. Formula: GST Amount = Price × GST Rate%.
GST Inclusive (Remove GST): The price shown already includes GST. To find the pre-GST price: Pre-GST Price = Price × 100 / (100 + GST Rate).
| Add GST (Exclusive) | Remove GST (Inclusive) | |
|---|---|---|
| Price | ₹1,000 | ₹1,180 |
| GST Rate | 18% | 18% |
| GST Amount | ₹180 | ₹180 |
| Final/Base Price | ₹1,180 | ₹1,000 |
GST Registration Threshold
Businesses with annual turnover above ₹40 lakh (goods) or ₹20 lakh (services) must register for GST. In special category states (North-East, hilly states), the threshold is lower at ₹20L / ₹10L.
The Composition Scheme allows small businesses (turnover below ₹1.5 crore) to pay GST at a reduced flat rate (1%–6%) without claiming ITC, simplifying compliance.
Common GST FAQs
- Is GST charged on rent? Residential rent is exempt. Commercial rent above ₹20L/year attracts 18% GST.
- Do freelancers pay GST? Yes, if annual income exceeds ₹20 lakh (services threshold). Exports of services are zero-rated.
- Is gold taxed under GST? Gold attracts 3% GST plus a 5% making charge GST.
- Are medicines taxed? Most medicines attract 12% GST. Life-saving drugs may be at 5% or exempt.