What Is GST? A Complete Guide

GST classification, rates, and compliance requirements can be fact-specific. This article is for general information and does not constitute tax advice.

What GST Is

GST is a destination-based, multi-stage tax levied on the supply of goods and services. “Destination-based” means the tax revenue goes to the state where the goods or services are consumed, not where they are produced. “Multi-stage” means it is collected at every point in the supply chain, from manufacturer to final consumer, but only on the value added at each stage.

GST was introduced on 1 July 2017 under the 101st Constitutional Amendment Act, 2016, which inserted Article 246A and Article 269A into the Constitution. It replaced central excise duty, service tax, VAT, Central Sales Tax, entry tax and octroi, and luxury and entertainment taxes, removing the cascading effect of tax-on-tax and creating a common national market.

How the Tax Actually Works

GST relies on Input Tax Credit (ITC): every registered person can claim credit for the GST they paid on their purchases, and set it off against the GST they collect on their sales, so tax is effectively paid only on the value added at each stage. A manufacturer buying raw material for ₹100 pays ₹18 GST and gets that as credit; selling the finished product for ₹150 with ₹27 GST means depositing only ₹9 (₹27 minus ₹18). Each business in the chain pays tax only on its own margin, and the final consumer, who cannot claim ITC, bears the full tax embedded in the price.

The taxable event itself is “supply,” defined broadly under Section 7 of the CGST Act, 2017 to include sale, transfer, barter, exchange, licence, rental, lease, and disposal made for consideration in the course of business.

CGST, SGST, IGST: The Dual Structure

Intra-state supply is charged CGST plus SGST/UTGST, usually splitting the applicable rate equally; an 18% supply within Maharashtra is 9% CGST plus 9% SGST. Inter-state supply and imports attract IGST at the full rate, collected by the Centre and apportioned to the destination state. The mechanics of cross-utilising ITC and the place-of-supply rules are covered in the dedicated CGST/SGST/IGST article.

Current GST Rates (Post GST 2.0)

Following the 56th GST Council meeting on 3 September 2025, the earlier five-tier structure (0%, 5%, 12%, 18%, 28%) was rationalised into a simpler structure effective 22 September 2025.

Rate	Applies broadly to
0% (Nil)	Essential and life-saving goods and services
5%	Mass-consumption and daily-use items
18%	The standard, default rate: most goods and services
40%	Luxury and “sin” goods: tobacco, pan masala, aerated drinks
Special rates	3% gold/silver/jewellery; 0.25% rough diamonds

If you have seen the older 12% and 28% slabs referenced elsewhere, that content predates this rationalisation. Item-level classification still matters, so confirm against the current HSN/SAC notification for anything commercially important.

What Falls Outside GST

Alcohol for human consumption, five specified petroleum products (crude oil, petrol, high-speed diesel, ATF, natural gas), and electricity remain outside GST and continue under the older regime.

Who Needs to Register

Registration is driven by aggregate turnover on a PAN-India basis: ₹40 lakh for goods suppliers (₹20 lakh in special category states), ₹20 lakh for service providers (₹10 lakh in special category states). Certain categories, inter-state suppliers, e-commerce operators and sellers, casual and non-resident taxable persons, and reverse-charge payers, must register regardless of turnover. Full detail in the dedicated GST Registration article.