What Is GST? A Plain-English Guide to India's Goods and Services Tax
GST stands for Goods and Services Tax. It is the single indirect tax that replaced a long list of older taxes, such as VAT, service tax and excise duty, when it was introduced across India on 1 July 2017. If you have ever looked at a bill and seen a line called GST, this guide explains what it is and why it is there.
What GST actually is
GST is a tax on the supply of goods and services. It is charged at every step of the supply chain, but the tax paid on the inputs is credited against the tax collected on the output. This is called input tax credit. The result is that, in the end, the tax falls on the final consumer, which is you, and not on the businesses in between.
Before GST, a product could be taxed several times, with tax charged on top of tax. The aim of GST was one nationwide tax so that goods can move between states without a pile of separate levies.
CGST, SGST and IGST
GST is shared between the Centre and the states, so a bill can show it in different parts:
- CGST (Central GST) is collected by the Central Government on a sale within one state.
- SGST (State GST) is collected by the state government on that same sale. A union territory without a legislature charges UTGST instead.
- IGST (Integrated GST) is charged when goods or services move from one state to another, and when they are imported. The Centre collects it and passes the state share on.
For a sale inside one state at 18% GST, the bill splits the rate equally: 9% CGST and 9% SGST. For a sale to another state, the bill shows 18% IGST. The total tax the buyer pays is the same either way.
The GST rate slabs
Since 22 September 2025, following the decisions of the 56th GST Council meeting, most items fall into three main slabs, plus a zero rate and a few special rates:
| Rate | What it generally covers |
|---|---|
| 0% | Many basic food items and some essential goods and services |
| 5% | Everyday necessities and a range of items meant to stay affordable |
| 18% | The standard rate for most goods and services |
| 40% | A small group of luxury and sin goods |
| 3% and 0.25% | Special rates for precious metals and rough precious stones |
The older 12% and 28% slabs were removed in that reform. Rates are decided by the GST Council and can change, and the exact rate for a product depends on how it is classified, so always check the official rate notification or ask your accountant when the amount matters. Our GST Calculator lets you pick any of the standard rates and shows the working.
Who has to register for GST
A business must normally register once its yearly turnover crosses a threshold, which differs for goods and services and for some states. Certain businesses, such as those selling across state lines or through e-commerce platforms, may need to register regardless of turnover. A registered business charges GST on its sales, files returns, and claims credit for the GST it paid on its purchases. Small businesses can also choose the composition scheme, which has a lower, simpler tax but no input tax credit.
How GST shows up on a bill
A proper tax invoice shows the price before tax, the GST rate, the amount of tax split into CGST and SGST (or IGST), and the final total. It also carries the seller's GSTIN, a 15-character registration number. If a shop quotes a price and says "plus GST", the tax will be added on top. If it says "inclusive of GST", the tax is already inside the price and you can work backwards to find it.
A quick example
A pair of shoes costs ₹2,000 before tax and the GST rate is 18%.
- GST = ₹2,000 × 18 ÷ 100 = ₹360
- Price you pay = ₹2,000 + ₹360 = ₹2,360
- If the sale is inside one state, the bill shows ₹180 CGST and ₹180 SGST.
Key points to remember
- GST is a consumption tax that the final buyer ultimately pays.
- Inside a state you see CGST plus SGST. Between states you see IGST.
- The main slabs are 5%, 18% and 40%, with 0% for exempt items and special rates for precious metals and stones.
- Always check whether a quoted price includes GST or not.
This article is general information and not tax advice. For filing, registration or classification questions, speak to a qualified tax professional or check the official GST portal.