GST (Goods and Services Tax) replaced a maze of indirect taxes - VAT, service tax, excise duty, and more - with a single, unified tax system across India. Whether you are a consumer, small business owner, or just curious, this guide explains GST in simple terms.
What is GST?
GST is an indirect tax levied on the supply of goods and services. It was introduced on 1 July 2017 under the principle of "One Nation, One Tax." Instead of multiple taxes at different stages (manufacturing, wholesale, retail), GST is a single tax applied at each value-addition stage, with credit for taxes paid earlier.
Types of GST - CGST, SGST, IGST
| Type | Full Form | When Applied | Collected By |
|---|---|---|---|
| CGST | Central GST | Intra-state sale | Central Government |
| SGST | State GST | Intra-state sale | State Government |
| IGST | Integrated GST | Inter-state sale | Central Government |
For an intra-state sale (within the same state), both CGST and SGST apply equally. For example, if GST is 18%, you pay 9% CGST + 9% SGST. For an inter-state sale (across states), only IGST applies at the full rate (18% IGST).
🧾GST Slabs - Updated for GST 2.0 (22 September 2025)
India simplified its GST slab structure on 22 September 2025 under the "GST 2.0" reform. The 12% and 28% slabs were eliminated - approximately 99% of items in 12% moved to 5%, 90% of items in 28% moved to 18%, and sin goods (premium cars, tobacco, aerated drinks) consolidated into a new 40% slab. Health and life insurance premiums became fully GST-exempt.
| Slab | Examples (post 22 Sep 2025) |
|---|---|
| 0% (Nil-rated) | Fresh fruits, vegetables, milk, eggs, bread, salt, education, healthcare, life and health insurance, 33 listed life-saving drugs |
| 5% | Packaged food, soaps, shampoos, footwear under ₹1,000, fertilizers, most medicines, restaurants (without alcohol), economy travel, mobile phones |
| 18% | Most other goods and services - ACs, TVs, refrigerators, washing machines, cement, IT services, telecom, financial services, AC restaurants, cars (small/mid), OTC vitamins |
| 40% (sin goods) | Premium cars, tobacco products, aerated beverages (replaces the old 28% + compensation cess regime) |
| 3% (special) | Gold and silver jewellery (3% on metal value, 5% on making charges) |
| 0.25% (special) | Rough diamonds |
Legacy note: 12% and 28% rates are no longer applicable for new transactions but still relevant when filing returns, doing audits, or reconciling invoices issued before 22 September 2025.
GST on Everyday Items (Current Rates)
- Restaurant food (without alcohol): 5% (no input credit) under composition; 18% if regular registration
- Mobile phones: 5% (down from 12% pre-reform)
- ACs, TVs, refrigerators: 18% (down from 28%)
- Most medicines: 5% (down from 12%); life-saving drugs nil; OTC vitamins 18%
- Gold jewellery: 3% on gold + 5% on making charges
- Insurance premiums (life and health): 0% (newly exempt under GST 2.0)
- Online shopping: Depends on item (mostly 5% or 18%)
- Movie tickets: 5% (up to ₹100); 18% (above ₹100)
- Premium cars and SUVs: 40%
- Tobacco, aerated drinks: 40%
GSTIN - What is a GST Number?
GSTIN (GST Identification Number) is a 15-digit unique number assigned to every registered taxpayer. The format is:
| Position | Meaning | Example |
|---|---|---|
| 1-2 | State code | 27 (Maharashtra) |
| 3-12 | PAN of the business | AABCS1429B |
| 13 | Entity number (registrations in same state) | 1 |
| 14 | Default "Z" | Z |
| 15 | Check digit | 5 |
Input Tax Credit (ITC) - How Businesses Save
ITC is the core feature that makes GST work. If you are a registered business, you can claim credit for GST paid on your purchases (inputs) against the GST you collect on your sales (output). You only pay the government the difference.
For example: You buy raw materials for ₹1,00,000 + 18% GST (₹18,000). You sell the finished product for ₹1,50,000 + 18% GST (₹27,000). You pay the government only ₹27,000 - ₹18,000 = ₹9,000.
GST Filing - Key Returns
- GSTR-1: Details of outward supplies (sales). Due by 11th of next month.
- GSTR-3B: Summary return with tax payment. Due by 20th of next month.
- GSTR-9: Annual return. Due by 31st December of the next financial year.
GST Composition Scheme
Small businesses with turnover under ₹1.5 crore (₹75 lakh for special category states) can opt for the Composition Scheme. Benefits:
- Pay GST at a flat rate (1% for manufacturers, 5% for restaurants, 6% for services)
- File quarterly returns instead of monthly
- Simpler compliance, less paperwork
The trade-off: you cannot claim ITC and cannot do inter-state sales.
How GST Affects Your Daily Purchases
As a consumer, GST is already included in the price you pay. Look for the GST breakup on your bills - restaurants, online orders, and service providers must show CGST and SGST (or IGST) separately. This transparency is one of the biggest improvements over the pre-GST era where multiple hidden taxes were buried in the price.