What Is GST?
Goods and Services Tax (GST) is India's unified indirect tax, introduced on 1 July 2017 under the motto "One Nation, One Tax." It replaced over a dozen overlapping central and state taxes — VAT, service tax, central excise duty, octroi, entry tax, and more — with a single, streamlined levy.
GST is applied at every stage of the supply chain — from raw material to manufacturer to wholesaler to retailer to consumer — but only on the value added at each step. The mechanism that prevents double taxation is called Input Tax Credit (ITC): businesses deduct the GST they already paid on their purchases from the GST they collect on sales, remitting only the net difference to the government.
💡 GST Is a Destination-Based Tax
Revenue goes to the state where the goods or services are consumed, not where they're produced. This is why inter-state sales use IGST — the Centre collects it and redistributes it to the destination state, ensuring every state gets tax revenue from consumption within its borders.
India operates a dual GST structure: both the Centre and states levy tax simultaneously on the same transaction. For most taxpayers, this is invisible — you see a single GST percentage on your invoice — but in the accounting it flows into two separate government accounts.
GST Slabs in India (FY 2024–25)
India has five primary GST rate slabs, plus a handful of special rates for specific commodities. Here's what each covers:
Exempt / Nil Rated
Fresh vegetables and fruits, milk and eggs, unbranded cereals and pulses, healthcare services, educational services, books and newspapers, government services.
Businesses supplying only exempt goods/services cannot claim ITC.
Basic Necessities
Clothing below ₹1,000, footwear below ₹1,000, coffee and tea, edible oils, fertilisers, domestic LPG, passenger transport (economy class), restaurant food.
Many items here are lifelines for lower-income households, kept at 5% by design.
Standard Goods
Packaged food items, processed food, butter and cheese, fruit juices, LED lights, bicycles, solar panels, umbrellas, under-construction commercial property, medicines.
The 12% slab covers a wide range of everyday goods that are not strictly essential but not luxury either.
Most Services & Technology
Mobile phones, laptops and computers, cameras, telecom services, IT services, banking and insurance, hotels above ₹7,500/night, air conditioned restaurants, premium hair care products.
18% is the most common rate for services in India — if you're unsure which rate applies to a service, 18% is usually the safe default to verify.
Luxury & Sin Goods
Cars (most categories), SUVs, ACs, washing machines, refrigerators, TVs above 32 inches, tobacco products, aerated drinks, gambling and race clubs.
Many 28% items also attract an additional GST Cess on top of the 28% — especially in vehicles and tobacco.
⚠️ Special Rates to Know
Outside the main slabs, gold and silver jewellery attract 3% GST, cut and polished diamonds attract 1.5%, rough diamonds 0.25%, and affordable housing below ₹45 lakh carries 1% GST. Always check the specific notification for these categories.
CGST vs SGST vs IGST — Explained Clearly
These three acronyms confuse nearly every GST newcomer. Here's the simplest way to understand them:
CGST
Central GST
Collected by the Central Government. Applies on intra-state transactions alongside SGST. Half the total GST rate.
SGST
State GST
Collected by the State Government. Applies alongside CGST on intra-state transactions. Always equals CGST portion.
IGST
Integrated GST
Collected by the Centre on inter-state transactions. Full GST rate in one levy. Centre distributes state's share later.
How to Decide Which Applies: The Place of Supply Rule
The rule is entirely based on the <strong>Place of Supply (POS)</strong>. If the supplier's state and the place of supply are the same — CGST + SGST apply. If they're different — IGST applies. For goods, POS is typically where goods are delivered. For services, it's usually where the buyer is located.
✓ CGST + SGST (Intra-State)
Mumbai supplier → Mumbai buyer: CGST 9% + SGST 9%
Same state = split equally between Centre and Maharashtra
✓ IGST (Inter-State)
Mumbai supplier → Delhi buyer: IGST 18%
Centre collects full 18%, later settles Delhi's share
The total tax burden is identical whether CGST+SGST or IGST applies — it's always the full GST rate. The distinction only affects accounting entries and which government account receives the money first.
How to Add GST to a Base Price
Use this when you have the pre-tax (exclusive) price and need to find what the customer should pay including GST.
// Formula — Adding GST
GST Amount = Base Price × (GST Rate ÷ 100)
Total Price = Base Price + GST Amount
// For intra-state (CGST + SGST):
CGST Amount = Base Price × (GST Rate ÷ 2 ÷ 100)
SGST Amount = Base Price × (GST Rate ÷ 2 ÷ 100)
// For inter-state (IGST):
IGST Amount = Base Price × (GST Rate ÷ 100)📌 Worked Example: Adding 18% GST to ₹25,000
GST Amount = ₹25,000 × (18 ÷ 100) = ₹4,500
Total Price = ₹25,000 + ₹4,500 = ₹29,500
Intra-state split:
CGST (9%) = ₹25,000 × 0.09 = ₹2,250
SGST (9%) = ₹25,000 × 0.09 = ₹2,250
This is the most straightforward GST scenario — used on every B2B and B2C invoice where you know the product's ex-tax price. Most pricing tables, catalogues, and ERP systems store prices exclusive of tax and apply the GST formula at invoice generation time.
How to Remove GST from a GST-Inclusive Price
Use this when you have the final consumer price (inclusive of GST) and need to find the base amount and tax component separately. This is essential for ITC claims, accounting entries, and verifying whether a quoted price is correctly GST-inclusive.
// Formula — Removing GST
Base Price = Inclusive Price ÷ (1 + GST Rate ÷ 100)
GST Amount = Inclusive Price − Base Price
// Alternative single formula:
GST Amount = Inclusive Price × GST Rate ÷ (100 + GST Rate)📌 Worked Example: Removing 18% GST from ₹11,800
Base Price = ₹11,800 ÷ (1 + 0.18) = ₹11,800 ÷ 1.18 = ₹10,000.00
GST Amount = ₹11,800 − ₹10,000 = ₹1,800
Intra-state split:
CGST (9%) = ₹1,800 ÷ 2 = ₹900
SGST (9%) = ₹1,800 ÷ 2 = ₹900
⚠️ Common Mistake: Subtracting the Rate Directly
A frequent error is calculating base as: ₹11,800 × (1 − 0.18) = ₹9,676. This is wrong. The correct base is ₹10,000. You must divide by (1 + rate), not subtract the rate from the inclusive amount. The GST Calculator tool handles this correctly in Remove GST mode.
Worked Examples for Common Situations
Example 1: IT Services Invoice (18% IGST, Inter-State)
A Bengaluru-based software company raises an invoice to a Delhi client for ₹80,000.
Base Amount = ₹80,000
IGST (18%) = ₹80,000 × 0.18 = ₹14,400
Total = ₹80,000 + ₹14,400 = ₹94,400
💡 Inter-state → IGST only. CGST and SGST do not appear on this invoice.
Example 2: Retail Clothing Purchase (5% GST, Intra-State)
A customer buys a shirt priced at ₹850 (excl. GST) from a local store.
GST (5%) = ₹850 × 0.05 = ₹42.50
CGST (2.5%) = ₹21.25
SGST (2.5%) = ₹21.25
Total = ₹850 + ₹42.50 = ₹892.50
💡 Clothing below ₹1,000 = 5% GST. Above ₹1,000 it would be 12%.
Example 3: Restaurant Bill (5% Inclusive, Remove GST)
Your bill at an AC restaurant shows ₹2,360. You want to know how much GST you paid.
Base = ₹2,360 ÷ 1.05 = ₹2,247.62
GST = ₹2,360 − ₹2,247.62 = ₹112.38
CGST = ₹56.19, SGST = ₹56.19
💡 Restaurants charge 5% GST (no ITC on inputs). The inclusive price is what you pay; remove-GST formula extracts the tax component.
Example 4: Gold Jewellery (3% Special Rate, Intra-State)
You're buying a gold necklace. The jeweller quotes ₹1,50,000 as the gold value (excl. GST).
GST (3%) = ₹1,50,000 × 0.03 = ₹4,500
CGST (1.5%) = ₹2,250
SGST (1.5%) = ₹2,250
Total = ₹1,50,000 + ₹4,500 = ₹1,54,500
💡 Gold uses a special 3% slab, not one of the main 5 slabs. The 3% selector is not on the main calculator — use the manual amount entry for gold calculations.
Input Tax Credit (ITC) — How It Works
Input Tax Credit is the mechanism that prevents double taxation in the GST chain. Every registered business can offset the GST paid on its purchases (inputs) against the GST it collects on its sales (output tax), paying only the net difference to the government.
ITC Flow Through the Supply Chain
Total govt receives: ₹180+₹180+₹90+₹90 = ₹540 = exactly 18% of final consumer price ₹3,000
⚠️ Who Cannot Claim ITC?
Composition scheme dealers, businesses making only exempt supplies, and personal purchases cannot claim ITC. Additionally, ITC is blocked on certain items even for registered businesses — including motor vehicles (with some exceptions), food and beverages, employee welfare services, and construction of immovable property for personal use.
GST Registration Thresholds
Not every business needs to register for GST. The thresholds depend on your business type, goods vs services, and whether you operate in special category states.
₹40 Lakh
Goods Suppliers (Regular States)
Aggregate annual turnover above ₹40 lakh requires mandatory registration.
₹20 Lakh
Services Suppliers (Regular States)
Service businesses must register once turnover crosses ₹20 lakh.
₹10–20 Lakh
Special Category States
Northeastern states and certain hill states have lower thresholds of ₹10L–₹20L.
₹0
Mandatory Registration (Any Turnover)
E-commerce sellers, inter-state suppliers, and reverse charge recipients must register regardless of turnover.
Common GST Calculation Mistakes
Subtracting GST Rate Directly (Wrong Remove Formula)
The most common mathematical error: computing ₹11,800 × (1 − 0.18) = ₹9,676 instead of the correct ₹11,800 ÷ 1.18 = ₹10,000. Always divide by (1 + rate) when removing GST — never subtract.
Charging GST on Exempt Goods/Services
Healthcare, education, and certain agricultural items are GST-exempt (0% rate). Charging GST on these is legally incorrect and can create compliance issues. Verify the HSN code before applying any rate.
Wrong Intra/Inter-State Classification
Using CGST+SGST for what is actually an inter-state supply (or vice versa) means the wrong government account receives the tax. This requires correction via credit/debit notes and can attract penalty during GSTR reconciliation.
Missing Rate Thresholds on Value-Based Items
Clothing under ₹1,000 = 5%, over ₹1,000 = 12%. Footwear under ₹1,000 = 5%, over ₹1,000 = 18%. Not checking the transaction value before applying a flat rate leads to systematic over- or under-billing.
Applying GST on Advance Payments Incorrectly
GST on advance payments for goods no longer applies (waived for most sectors), but for services, GST is still due on advances received before service delivery. The time of supply rules must be carefully followed.
Frequently Asked Questions
What is the GST rate for software services in India?
Software services, IT consulting, SaaS products, and most technology services attract 18% GST in India. This applies to both B2B and B2C transactions. Export of software services is zero-rated (0% GST) when supplied to a foreign client and payment is received in foreign currency.
Can I use the composition scheme to simplify GST compliance?
Yes, if your aggregate annual turnover is below ₹1.5 crore (₹75 lakh for some states and service providers). Composition dealers pay a fixed percentage of turnover (0.5%–6% depending on business type), cannot charge GST on invoices, and file quarterly returns instead of monthly. The downside is no ITC and restricted inter-state sales.
How is GST calculated on imports?
Imports are treated as inter-state supply, so IGST applies at the applicable rate. But IGST on imports is calculated on: (Assessable Value + Basic Customs Duty + any other applicable duties). So the GST base is higher than just the invoice value. The importer can later claim this IGST as ITC.
What is reverse charge mechanism (RCM) in GST?
Under the Reverse Charge Mechanism, the liability to pay GST shifts from the supplier to the recipient. This applies in specific cases — buying from unregistered dealers, availing certain services like legal fees from advocates, or importing services. The recipient pays the GST directly to the government and can then claim it as ITC.
How do I find the HSN code for my product?
The HSN (Harmonised System of Nomenclature) code is a 6–8 digit international classification code for goods. You can find it on the CBIC GST rate schedule, the GSTN portal's HSN search, or by consulting a CA. Businesses with turnover above ₹5 crore must mandatorily print 6-digit HSN codes on all B2B invoices.
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