What is GST? A Plain-English Guide

GST in one minute

GST is a consumption tax: it is charged at every stage of a supply chain, but businesses can claim back the tax they already paid on their inputs (called input tax credit). The result is that tax effectively applies only to the value each business adds, and the final consumer bears the full tax.

It is also destination-based — the tax revenue goes to the state where the goods or services are consumed, not where they are produced.

CGST, SGST and IGST — what the split means

Every GST charge is collected under one of three heads, depending on where the buyer and seller are:

• Within one state (intra-state): the rate is split equally into CGST (centre) and SGST (state). An 18% sale becomes 9% CGST + 9% SGST.
• Across states (inter-state) and imports: the full rate is collected as IGST by the centre, then settled with the destination state.
• For you as a buyer the total is the same either way — the split only changes which government receives it.

The current GST slabs

Since the rate rationalisation that took effect in September 2025 (often called 'GST 2.0'), the structure is much simpler than the original four-slab system:

• 0% — essential items such as unbranded food staples and many education and health services.
• 5% — common mass-consumption goods and services.
• 18% — the standard rate for most goods and services, including professional and IT services.
• 40% — a demerit rate for items like tobacco, pan masala, aerated drinks and luxury cars.
• The older 12% and 28% slabs were largely merged into 5% and 18%, though you may still see them on older invoices.

Who has to register for GST

Registration becomes mandatory once your aggregate annual turnover crosses the threshold — broadly ₹40 lakh for goods and ₹20 lakh for services in most states (lower limits apply in special category states). Some activities, such as selling through e-commerce platforms or making inter-state supplies of goods, require registration regardless of turnover.

Registered businesses receive a 15-character GSTIN and must file periodic returns. Small businesses can opt for the composition scheme, paying a low flat rate in exchange for simpler compliance (with restrictions, such as not collecting GST from customers or claiming input credit).

Input tax credit: why GST is not a tax on tax

Input tax credit (ITC) is the mechanism that prevents cascading. If a manufacturer pays ₹180 GST on raw materials and collects ₹360 GST on the finished product, it deposits only the difference (₹180) with the government.

This is why valid GST invoices matter so much in B2B trade — without your supplier's invoice reported correctly, you cannot claim the credit.