GST meaning
GST stands for Goods and Services Tax. It is a tax on consumption: it is charged at each stage where goods or services are sold, but each business deducts the GST it already paid on its purchases, so in the end the tax is borne by the final customer.
GST came into force on 1 July 2017 under the Constitution (101st Amendment) Act, 2016. It replaced a tangle of central and state taxes, including central excise duty, service tax, VAT, central sales tax, entry tax and most entertainment and luxury taxes, with one system across India. Rates and rules are decided by the GST Council, made up of the Union Finance Minister and the finance ministers of the states.
GST is destination-based: the tax goes to the state where the goods or services are consumed, not where they were made. That is why a sale within a state and a sale to another state are taxed differently, as the next section explains.
Types of GST: CGST, SGST, UTGST and IGST
| Type | Full form | When it applies | Who collects it |
|---|---|---|---|
| CGST | Central GST | Sales within the same state, alongside SGST | Central government |
| SGST | State GST | Sales within the same state, alongside CGST | State government |
| UTGST | Union Territory GST | Sales within a union territory without its own legislature, in place of SGST | Union territory |
| IGST | Integrated GST | Sales from one state to another, and imports | Central government, shared with the destination state |
For example, a Thiruvananthapuram shop selling an ₹1,000 item at 18% to a customer in Kerala charges 9% CGST (₹90) and 9% SGST (₹90). If it ships the same item to a buyer in Tamil Nadu, it charges 18% IGST (₹180) instead. The total is the same; only the split changes. Our free GST calculator shows the split for any amount.
GST rates in India (2026)
The GST 2.0 reform, effective 22 September 2025, simplified the rate structure. The old 12% and 28% slabs were removed, and most items moved to 5% or 18%.
| Rate | Applies to (examples) |
|---|---|
| 0% (exempt) | Essentials such as fresh fruit and vegetables and milk; most education and healthcare services |
| 5% | Everyday household goods and many packaged foods; restaurant services (without input tax credit) |
| 18% | The standard rate for most goods and services, including professional and IT services, most electronics and small cars |
| 40% | Luxury and sin goods, such as aerated drinks, tobacco products, and larger cars and motorcycles |
| 3% | Gold, silver and jewellery |
| 0.25% | Rough diamonds |
The GST compensation cess, which used to be charged on top of GST on items such as tobacco and cars, was withdrawn from 1 February 2026.
How GST works: input tax credit
The key idea in GST is input tax credit (ITC). A registered business collects GST on its sales but deducts the GST it paid on its purchases, and pays the government only the difference. Tax is paid on the value added at each stage, never on tax already paid.
| Stage | Sale price | GST charged | Less GST already paid | GST paid to government |
|---|---|---|---|---|
| Manufacturer sells to retailer | ₹1,000 | ₹180 | ₹0 | ₹180 |
| Retailer sells to customer | ₹1,500 | ₹270 | ₹180 | ₹90 |
| Total collected by government | ₹270 |
The government collects ₹270 in total, which is exactly 18% of the final ₹1,500 price, paid by the customer. To claim ITC, the purchase must be for business, you need a valid tax invoice, and your supplier must have reported the sale in their returns. It then shows in your GSTR-2B statement.
Who needs to register for GST?
A business must register for GST once its aggregate turnover in a financial year crosses the threshold:
- ₹40 lakh for businesses that only supply goods, in most states.
- ₹20 lakh for service providers, and for businesses supplying both goods and services, in most states.
- Lower limits apply in some special category states, so check which limit your state uses.
Some businesses must register whatever their turnover, including those selling goods to other states and most sellers on e-commerce marketplaces. Registration is free on the GST portal and gives you a 15-digit GSTIN.
Small businesses can choose the composition scheme instead of normal GST if their turnover is up to ₹1.5 crore (lower in some states). They pay a flat rate on turnover, such as 1% for traders and manufacturers or 5% for restaurants, and file fewer returns. Service providers have a separate 6% scheme for turnover up to ₹50 lakh. The trade-offs: composition businesses can’t charge GST on their invoices, can’t claim input tax credit and can’t sell goods to other states.
GST returns
| Return | What it reports | How often |
|---|---|---|
| GSTR-1 | Details of your sales (outward supplies) | Monthly, or quarterly under the QRMP scheme for turnover up to ₹5 crore |
| GSTR-3B | Summary of sales, input tax credit and tax paid | Monthly, or quarterly under QRMP |
| GSTR-9 | Annual return | Yearly (optional for smaller businesses) |
| CMP-08 and GSTR-4 | Tax statement and annual return for composition businesses | Quarterly and yearly |
Late returns attract a late fee for each day of delay, and unpaid tax attracts interest, so it pays to file on time. Billing software that prepares GSTR-1 and GSTR-3B data straight from your invoices removes most of the monthly work.
What a GST invoice must show
- Your name, address and GSTIN, and the buyer’s GSTIN if they are registered.
- A unique invoice number and the date.
- The HSN code (goods) or SAC code (services) for each item.
- Quantity, taxable value and the GST rate.
- The tax amount split into CGST and SGST, or IGST.
- The place of supply, which decides whether CGST/SGST or IGST applies.
Larger businesses have extra rules: e-invoicing (registering B2B invoices on the government portal) applies above ₹5 crore annual turnover, and an e-way bill is needed to move goods worth more than ₹50,000.
Common GST mistakes to avoid
- Wrong tax type. Charging CGST and SGST on an inter-state sale, or IGST on a local one. Getting the place of supply wrong is one of the most common errors.
- Outdated rates. Many items changed slab on 22 September 2025. Billing with old rates means under- or over-charging customers.
- Lost input tax credit. Credit is available only if your supplier files their returns. Check GSTR-2B every month and follow up with suppliers who haven’t filed.
- Late filing. Fees and interest add up quickly, and missing returns for two periods in a row can block you from generating e-way bills.
- Retyping sales for the accountant. Copying invoices into returns by hand is slow and error-prone.
Most of these mistakes come from doing GST by hand. Zeekoi’s zbill creates GST invoices with the right tax split and prepares GSTR-1 and GSTR-3B data from your sales; shops and businesses in Kerala can get it set up on site. To check a single amount, use the free GST calculator.
