C.K. GuptaGoods and Services Tax (GST) is the single tax that India charges on the sale of most goods and services. It came into force on 1 July 2017 and replaced a tangle of older taxes such as VAT, excise duty and service tax. One registration, one return series and one tax rate per item — that is the core idea.
If you run a shop, a service business or an online store, GST affects every invoice you issue. This guide explains the different parts of GST — CGST, SGST, UTGST and IGST — with simple examples, so you always know which tax you are collecting and where it goes.
Why GST replaced VAT, excise and service tax
Before 2017, a product could be taxed by the Centre when it left the factory, taxed again by the state when it was sold, and taxed yet again at each stage of trade. Taxes were charged on tax — a problem economists call “cascading”. This pushed up prices and made compliance a nightmare for small businesses.
GST fixed this by taxing only the value added at each stage. A registered business charges GST on its sales (output tax) and claims credit for the GST paid on its purchases (input tax credit, or ITC). The final consumer bears the tax; businesses in the chain act as collection points. The change was made possible by the 101st Constitution Amendment Act, 2016, which created the legal base for GST and set up the GST Council under Article 279A.
The four parts of GST: CGST, SGST, UTGST and IGST
GST in India is a dual tax — collected by both the Centre and the states. Which component appears on your invoice depends only on where your customer is located:
| Type of supply | Tax charged | Who collects it |
|---|---|---|
| Within your own state (intra-state) | CGST + SGST (or UTGST) | Centre and the state / UT split the tax 50:50 |
| To another state or UT (inter-state) | IGST | Centre collects, then settles with the destination state |
| Imports | IGST (plus customs duty) | Centre, at the port of entry |
| Exports and SEZ supplies | Zero-rated — 0% with ITC refund | No tax, but input credit is refunded |
Example
You run a bakery in Jaipur, Rajasthan. Selling 100 cakes to a shop in Jaipur: charge 2.5% CGST + 2.5% SGST (if the 5% slab applies). Selling the same cakes to a shop in Ahmedabad, Gujarat: charge 5% IGST instead. The buyer pays the same 5% either way — only the split changes.
Current rate slabs (after GST 2.0, September 2025)
From 22 September 2025, following the 56th GST Council meeting, India moved to a simpler rate structure. Most items now fall into two main slabs — 5% and 18% — with a special 40% rate reserved for sin and luxury goods such as pan masala, tobacco products, aerated sugary drinks and high-end cars. Many everyday essentials, including fresh food items, are exempt (0%). Gold jewellery keeps its special 3% rate.
The old 12% and 28% slabs were largely merged into the two main slabs under GST 2.0. If you are still using an old rate chart from 2024 or earlier, update it — charging the wrong rate can block your buyer’s input credit.
Who must register for GST
Registration is not mandatory for everyone. Businesses selling goods generally need to register once aggregate turnover crosses ₹40 lakh in a financial year (₹20 lakh in special-category states such as the north-eastern states, Himachal Pradesh and Uttarakhand). For services, the limit is ₹20 lakh (₹10 lakh in special-category states).
Some categories must register regardless of turnover — for example, anyone making inter-state supply of goods, casual taxable persons, e-commerce sellers where required, and businesses paying tax under reverse charge. Our separate guide on GST registration limits covers this in detail, including how to apply online.
How a GST invoice works, end to end
- You sell goods worth ₹10,000 + 5% GST = ₹10,500. You collect ₹500 as GST.
- You had bought flour and sugar worth ₹4,000 + 5% GST = ₹4,200 earlier, paying ₹200 as input GST.
- When filing GSTR-1 and GSTR-3B, you set off the ₹200 input credit against the ₹500 output tax.
- You pay only ₹300 to the government — the tax on the ₹6,000 of value you added.
This is exactly why honest invoicing matters: your buyer can claim input credit only if your invoice is reported correctly in your GSTR-1 and it appears in their GSTR-2B. Mismatched or missing invoices are the single biggest reason small suppliers lose credit and buyers lose trust.
Frequently Asked Questions
Is GST the same all over India?
The rate for an item is the same nationwide, but the tax is shared. Intra-state sales are split into CGST (Centre) and SGST/UTGST (state or union territory); inter-state sales carry IGST, collected by the Centre.
What does a GSTIN number look like?
It is a 15-character code: 2 digits for the state code, 10 characters from the PAN of the business, an entity number, the letter Z, and a check digit. You can verify any GSTIN free of cost on the GST portal (gst.gov.in) under Search Taxpayer.
Do I need GST if I sell only online?
In many cases yes — some e-commerce supplies require registration irrespective of turnover, and platforms often withhold tax. Check the platform agreement and the current CBIC notifications, or ask a GST practitioner before you start selling online.
Is GST applicable on petrol and alcohol?
No. Petroleum products such as petrol, diesel and aviation fuel, and alcohol for human consumption, remain outside GST and continue to be taxed under earlier laws. Five petroleum items (petrol, diesel, ATF, natural gas, crude) are provisionally under GST but notified rates are yet to be announced.
Sources & Official References
ITR, GST returns, notices and registrations — fixed fees, human support, on-time filing.
Fact-checked on 2025-09-25 • Content library version 2025.09.1
Disclaimer: This article is for general awareness only and is not legal, tax or professional advice. Tax rules change — always confirm current rates, limits and due dates with the official government portals listed above, or consult a qualified chartered accountant or tax practitioner before acting.
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