GST — Goods and Services Tax
GST (Goods and Services Tax) is India\'s unified indirect tax on supply of goods and services, replacing VAT, service tax and excise duty from 1 July 2017.
GST (Goods and Services Tax) is a comprehensive, multi-stage, destination-based indirect tax levied on every value addition in the supply chain of goods and services in India. It replaced a complex web of over a dozen central and state taxes — including Central Excise Duty, Service Tax, VAT, CST, Entry Tax and Octroi — when it came into effect on 1 July 2017.
How GST Works
GST follows a dual structure in India: both the central government and state governments levy GST simultaneously on the same transaction.
| Component | Collected by | Applicable on |
|---|---|---|
| CGST (Central GST) | Central Government | Intra-state supply of goods/services |
| SGST (State GST) | State/UT Government | Intra-state supply of goods/services |
| IGST (Integrated GST) | Central Government | Inter-state supply + imports |
| UTGST (Union Territory GST) | UT without legislature | Intra-UT supply |
When a business in Mumbai sells to a buyer in Mumbai, CGST and SGST apply (split equally). When it sells to a buyer in Delhi, IGST applies.
GST Rates
GST is levied at multiple rates depending on the type of goods or services:
| Rate | What It Covers |
|---|---|
| 0% (Nil) | Essential food items, fresh vegetables, milk, eggs, unbranded cereals |
| 5% | Household necessities, processed food, coal, economy hotels |
| 12% | Processed food, mobile phones, computer hardware |
| 18% | Most services (professional, IT, financial), FMCG, electronics |
| 28% | Luxury goods, automobiles, tobacco, aerated drinks |
Some goods attract additional Compensation Cess on top of the 28% rate (e.g. luxury cars, pan masala).
Who Must Register for GST?
GST registration is mandatory if:
- Aggregate turnover exceeds ₹40 lakh (for suppliers of goods; ₹20 lakh for some special category states)
- Aggregate turnover exceeds ₹20 lakh (for service providers; ₹10 lakh for some special category states)
- You supply goods or services inter-state, regardless of turnover
- You are an e-commerce operator or supply through an e-commerce platform
- You are a casual taxable person or non-resident taxable person
- You are liable to pay tax under reverse charge mechanism (RCM)
Voluntary registration is also available for businesses below the threshold, and is often beneficial for claiming Input Tax Credit (ITC).
Key GST Concepts
Input Tax Credit (ITC): The GST paid on purchases (inputs) can be offset against GST collected on sales (output tax). This prevents the cascading tax effect that existed under the old regime. See Input Tax Credit for details.
GSTIN: A 15-character unique identification number assigned to every GST-registered entity. The first two digits are the state code, the next ten are the PAN of the entity, and the remaining three digits identify the entity type and check digit. See GSTIN.
Return Filing: Registered businesses file periodic returns (GSTR-1 for outward supplies, GSTR-3B for summary and tax payment) on the GST portal. Annual return (GSTR-9) is filed by 31 December for the previous financial year.
Composition Scheme: Small taxpayers with turnover up to ₹1.5 crore (₹75 lakh for some states) can opt for the Composition Scheme, paying a fixed percentage of turnover as tax and filing simplified quarterly returns, but they cannot claim ITC or collect GST from customers.
Importance for Businesses
Understanding GST is essential because:
- All GST-registered businesses must file monthly or quarterly returns; non-compliance leads to interest (18% per annum) and penalties.
- ITC reconciliation between your purchase data and supplier filings (GSTR-2B) directly affects your cash flow.
- Customers who are GST registered prefer buying from GST-registered vendors so they can claim ITC.
For assistance with GST registration or GST return filing, consult a qualified CA or GST Practitioner.
This glossary entry is for educational purposes. GST provisions are subject to amendment; verify current rates and thresholds from the official GST portal (gst.gov.in).