What is GST (Goods and Services Tax)?
GST is India's unified indirect tax that replaced VAT, service tax, central excise and several other levies from 1 July 2017. It is a dual structure: Central GST (CGST) and State GST (SGST) apply to intra-state supplies; Integrated GST (IGST) applies to inter-state supplies and imports. The standard rate is 18%, with a luxury/demerit rate of 28%, and reduced rates of 12% and 5%. Basic food essentials attract 0%.
Current Rate (FY 2025-26 (AY 2026-27))
0% (essentials), 5% (basic goods/services), 12% (intermediate), 18% (standard — most B2B services), 28% (luxury, sin goods, vehicles). Cess applies on top of 28% for certain goods.
Example
A software company invoices INR 1,00,000 for services to a client in the same state. CGST 9% = INR 9,000 and SGST 9% = INR 9,000 are charged separately on the invoice. Total invoice value = INR 1,18,000. If the client is in another state, IGST 18% = INR 18,000 is charged instead.
How GST (Goods and Services Tax) works in India
GST was introduced on 1 July 2017 under the Constitution (101st Amendment) Act 2016, replacing a complex, multi-layered indirect tax system. The GST Council, chaired by the Union Finance Minister, sets rates and policy.
**Registration thresholds**
- Aggregate turnover above INR 20 lakh (INR 10 lakh for special category states) in a financial year: mandatory registration - Suppliers making inter-state taxable supplies: mandatory regardless of turnover - E-commerce operators and their sellers: mandatory regardless of turnover - Composition scheme available for businesses below INR 1.5 crore turnover (1% for traders, 5% for restaurants, 6% for services)
**GST rate slabs (services)**
- 0%: basic healthcare, education, agricultural services - 5%: transport services, basic hotel accommodation under INR 1,000/night - 12%: business class air travel, mid-range hotels - 18%: most professional services (IT, consulting, accounting, legal), restaurants above INR 7,500/night hotel, telecom - 28%: luxury hotels, 5-star dining, casinos, race clubs
**Input Tax Credit (ITC)**
Registered businesses can offset GST paid on purchases (input tax) against GST collected on sales (output tax), paying only the net to the government. ITC is available only if the supplier has filed their return and the credit appears in the buyer's GSTR-2B auto-populated form. This creates a compliance chain that incentivises vendor compliance.
**Key returns**
- GSTR-1: outward supply details (monthly by 11th, or quarterly for small taxpayers by 13th) - GSTR-3B: summary monthly return with net tax payable (monthly by 20th for large, 22nd/24th for small taxpayers) - GSTR-9: annual return (31 December of the following year) - GSTR-9C: reconciliation statement if turnover exceeds INR 5 crore (self-certified or CA-certified)
**E-invoicing**
Mandatory for companies with turnover above INR 5 crore (as of August 2023). Invoice Reference Number (IRN) generated on the IRP (Invoice Registration Portal) for every B2B invoice. E-way bill generated automatically from e-invoice data for goods worth over INR 50,000.
**Reverse charge mechanism (RCM)**
Certain specified supplies require the recipient to pay GST directly to the government (not the supplier). Examples: services from unregistered persons above threshold, GTA (goods transport agency) services, advocate services to businesses, import of services.
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