Understanding GST In India: Meaning, Slabs, And Benefits
India’s GST collections soared in May 2025, reaching INR 2.01 lakh crore, up 16.4% year-on-year and continuing a strong upward trend in government revenue. Most states posted double-digit growth, reflecting robust economic activity and improved compliance. These impressive receipts highlight India’s resilient tax ecosystem and solidify GST’s role as a driver of fiscal growth1.
Read more to know about the Goods and Service Tax (GST).
Introduction
Indirect taxes are directly associated with prices of goods & services. They add on to the prices of daily essentials, which indirectly affects common people. The different indirect taxes before 2017 were replaced by a single indirect tax - Goods and Service Tax (GST).
Do you ever wonder, what exactly is the Goods and Service Tax (GST)?
It is a type of indirect tax that is levied on the supply of goods/services in India. The GST is collected from the final consumer of the product. After the collection, the seller pays the same to the government.
The seller collecting this tax has to be GST registered. He/she will also have a unique GST Identification Number (GSTIN) which indicates a seller’s registration.
Value addition is the base for GST calculation. At every stage of the manufacturing process, GST is charged only on the value added.
Almost all businesses are included in this tax regime, substituting multiple taxes as one single tax. The tax charges are the same in every part of the country. This uniformity and transparency are the key features of this dual-structured indirect tax.
Moreover, all the GST-registered suppliers file the GST returns monthly or quarterly. Every business needs to be registered to file GST even if the transaction in a certain period is zero.
GST is levied on companies with an aggregate turnover of goods above INR 40 lakhs or services above INR 20 lakhs in most Indian states. For special category states—Manipur, Mizoram, Nagaland, and Tripura, the threshold is reduced to INR 10 lakhs for both goods and services, making GST registration compulsory at lower turnover. Jammu & Kashmir, Himachal Pradesh, and Assam, though previously classified as special category states, now apply the regular thresholds (INR 40 lakhs for goods, INR 20 lakhs for services). These limits help exempt small businesses below these turnover thresholds from GST registration and payment, reducing compliance and tax burdens2.
Also read: A beginner's guide to understanding Taxes in India
Origin of Good and Service Tax (GST)
The Goods and Service Tax (GST) was born after various controversies, debates, and negotiations. It has reformed the indirect tax structure in India. The Act came into force on July 1, 2017, mandating the implementation of only one unified indirect tax.
However, its origin dates back to the year 2000 in the proposition by the Kelkar Task Force on indirect taxes. In 2016, the GST Council Secretariat was established to regulate GST rates and other functions.
Objectives Of Good And Service Tax (GST)
1. Restrict Tax Evasion
The different taxes before the implementation of GST had cascading effects (tax on tax). GST is imposed only by the value addition in the product/service, which helps restrict any discrepancies.
2. Unified Tax Regime
There were nearly 14 different indirect taxes levied by the centre and state before the Goods and Service Tax (GST). These taxes created confusion for new businesses and also had several loopholes. GST replaced all these taxes with one single tax and with the same rates all over the country.
3. Widen the Tax Base
The GST aims to organise business in the country by providing GSTIN, lower thresholds, composition scheme, input tax credit, etc. Moreover, due to less tax, the hesitation is over, and taxpayers participate with awareness. GST has led to many informal businesses being brought into the formal sector, leading to greater access to finance, greater consumer trust etc.
4. Reduced Documentation
The substitution of different taxes also lowers the number of different documents needed. The single GST registration helps pay timely returns, avail credit, and link GSTIN with other facilities for the business.
5. Transparency to Consumers
Consumers are aware of the uniform rates and structure of the GST tax, which helps them assess the price they pay for any goods/services. Moreover, the GSTIN gives a valid identification of the seller.
6. Simple Tax Structure
The dual structure of GST is simple to understand and has uniform rates. Due to this, trust and transparency is established.
7. Tax Based on Destination
The tax is paid in states where goods/services are consumed finally by the customers. The intermediates are not liable to bear any tax burden.
8. Promotes Exports
Exports are not charged with GST as the goods/services are supplied outside India. Moreover, imports are charged with IGST. Exports promote the inflow of foreign receipts and thus favour the domestic industry.
9. ITC Benefit
In Goods and Service Tax (GST), one making the final goods pays GST on procuring raw material, but that GST payment is settled under Input Tax Credit (ITC).
10. Digital Compliance
The online process for the GST number application, registration, return filing, tax payment, credit, etc, is feasible enough for all. The Electronic Cash Ledger settles all the GST transactions for a merchant. Moreover, digitalisation catalyses higher tax compliance, greater revenue collection, increased transparency and convenience for small businesses.
Read more about tax evasion: Tax Evasion Tax Avoidance and Tax Planning
Key Components Of GST
The different components of the Goods and Service Tax (GST) are as follows:
Component | Levied by | Revenue earned by |
Central Goods and Services Tax (CGST) | Central Government on all transactions | Central Government |
State Goods and Services Tax (SGST) | State Government on transactions within the state | State Government |
Union Territory Goods and Services Tax (UTGST) | Union Territory Government on transactions within the Union Territory | Union Territory Government |
Integrated Goods and Services Tax (IGST) | Central Government on Intra-State transactions & Import | Central Government, but distributed among different States |
GST Cess | Central Government on all transactions | Distributed among States as compensation for GST. |
What Did It Change?
The complex structure of indirect tax before the Goods and Service Tax (GST) led to problems like tax evasion, cascading tax effects, and diverse product-wise tax structures. Before Goods and Service Tax (GST) different states had different Value Added Tax %, rules, and regulations.
Moreover, several registrations needed for VAT, excise, CST, service tax, etc, made the whole process cumbersome. It was also the reason for the small taxpayer base.
Stepwise GST Calculation Example: From Biscuit Factory To Consumer
We shall know more about Goods and Services Tax by having a simple example of a biscuit that travels along the supply chain: raw material, the manufacturer, the wholesaler, the retailer, and the consumer.
Assumption: GST rate = 12%
Step 1: Manufacturer Buys Raw Materials
- Cost of raw materials (flour, sugar, butter) = INR 100 (excluding GST)
- GST on raw materials @ 12% = INR 12
- Total paid by manufacturer = INR 112
- The Manufacturer can claim Input Tax Credit (ITC) of INR 12 on raw materials when filing GST on finished goods.
Step 2: Manufacturer Sells to Wholesaler
- Manufacturer sells biscuits at INR 200 (price exclusive of GST)
- GST on INR 200 @ 12% = INR 24
- Total invoice amount to wholesaler = INR 224
- Manufacturer claims ITC of INR 12 (paid on raw materials), so net GST payable = INR 24 - INR 12 = INR 12
- GST paid to government by manufacturer = INR 12
- Wholesaler pays INR 224 including GST.
Step 3: Wholesaler Sells to Retailer
- Wholesaler sells biscuits at INR 300 (price exclusive of GST)
- GST on INR 300 @ 12% = INR 36
- Total invoice amount to retailer = INR 336
- Wholesaler claims ITC of INR 24 (paid to manufacturer), so net GST payable = INR 36 - INR 24 = INR 12
- GST paid to government by wholesaler = INR 12
- Retailer pays INR 336 including GST.
Step 4: Retailer Sells to Consumer
- Retailer sells biscuits at INR 400 (price exclusive of GST)
- GST on INR 400 @ 12% = INR 48
- Total price to consumer = INR 448
- Retailer claims ITC of INR 36 (paid to wholesaler), so net GST payable = INR 48 - INR 36 = INR 12
- GST paid to government by retailer = INR 12
- Final consumer price including GST = INR 448.
Note: At each stage, GST is charged only on the value addition (difference between buying and selling price). Input Tax Credits ensure tax paid at earlier stages is adjusted, preventing cascading tax. The consumer pays the cumulative GST, which adds to the base price.
How ITC Eliminates Cascading Effect
- Without ITC: Each of the participants would be subject to GST on the total value, including the tax paid by the preceding stage, and this would create tax on tax.
- With ITC: The participants deduct already paid GST on inputs. Tax on value added is only on the value added at every stage, so as to avoid double taxation.
GST Slabs In India: Rates And Examples
India has a structured GST system with multiple tax rates depending on goods or services. Here’s a quick reference table for GST slabs India with common examples:
Item / Category | GST Rate Till 21st Sep 2025 | GST Rate From 22nd Sep 2025 | Explanatory Example |
| Daily Essentials – Milk, Bread, Curd, etc. | Nil | Nil | No GST impact. Important items will be tax-exempt to make them affordable. |
| Hair Care & Toiletries – Hair Oil, Shampoo, Soaps | 18% | 5% | To illustrate, a INR 100 shampoo that used to pay INR 18 GST, GST is now INR 5; this has really lowered the prices of retail outlets. |
| Butter, Ghee, and Cheese | 12% | 5% | A INR 200 pack of ghee that used to contain INR 24 GST will contain INR 10 GST only; hence, daily cooking essentials will be cheaper. |
| Personal Health & Life Insurance | 18% | Nil | There was a GST of 18% on insurance premiums in previous years. With the post update, no GST will be charged, and this will cut down policy costs to consumers. |
| Air Conditioners | 28% | 18% | A INR 30,000 AC used to be INR 30,000 AC plus INR 8,400 GST; this will be reduced to INR 5,400 GST, thus lowering the purchase price. |
| TV & Refrigerator | 28% | 18% | Consider the case of a INR 50,000 TV, which used to pay INR 14,000 GST, but currently, its payment has reduced to INR 9,000 GST. |
| Small Cars Below 1200cc | 28% | 18% | What was costing INR 6,00,000 on which the GST was being charged as INR 168,000 previously is now receiving INR 1,08,000 GST, thus the entry-level cars became cheaper. |
| Bikes Below 350cc | 28% | 18% | The INR 150,000 bike will attract INR 42000 GST on the bike hitherto, but with the update, this will be INR 27000 GST. |
| Tableware, Kitchenware, Utensils & Bamboo Furniture | 12% | 5% | An example is a INR 2000 bamboo chair, which used to levy INR 240 GST on INR 2000, but now it levies INR 100 GST instead, which will lower the price of household products. |
| Stationery Items – Pencils, Charts, Globes, Exercise Books & Notebooks | 12% | 5% | A INR 500 notebook package had INR 60 GST in it earlier, but this time it has only INR 25 GST. Students enjoy low prices. |
| Cement | 28% | 18% | A 50kg bag of cement that used to cost INR 500 had INR 140 GST, now INR 90 GST, and this saves on construction expenses. |
| Hotel Tariffs Up To INR 7,500 | 12% | 5% | A room in a hotel, which used to pay INR 900 GST in the form of tax, instead, it pays INR 375 GST. The greatest beneficiaries are the budget travellers. |
| Agriculture Machinery – Tractors, Drip Irrigation Systems, Sprinklers | 12% | 5% | An irrigation system that cost INR 200000 used to be taxed at INR 24000; it is now taxed at INR 10000 only. Farmers conserve on necessary equipment. |
| Aerated and Sugary Beverages, Caffeinated Beverages | 28% | 40% | A INR 100 soda that used to cost INR 28 GST costs INR 40 GST. The tax increase is directed at high-sugar and caffeinated beverages. |
| Luxury Cars and Premium Bikes | 28% | 40% | A luxury vehicle priced at INR 5,000,000 previously attracted a GST of INR 1,400,000 (28%), which has now increased to INR 2,000,000 (40%) under the revised GST slab. This higher GST rate aims to target luxury consumption while simplifying the tax structure. |
| Tobacco, Cigarettes, and Other Sin Goods | 28% | 40% | A pack of cigarettes that was selling at INR 200 used to have INR 56 GST, which has changed to INR 80 GST. This serves as a discouraging factor towards the consumption of detrimental products. |
GST Registration And Compliance
GST in India is not just about paying tax; it also involves proper registration and adherence to compliance rules. Here’s what businesses need to know:
1. GST Registration Process
Businesses are required to subscribe to GST when they have a greater turnover than the required threshold or when they offer certain services. This is done to make sure that there is proper monitoring of the taxes and entitlement to the Input Tax Credit (ITC).
Step-by-Step GST Registration Process
Part A: Generating a Temporary Reference Number (TRN)
1. Access GST Portal
2. Start New Registration: Open Services Registration New Registration.
3. Fill Part A of Form GST REG-01:
- Click on New Registration and Taxpayer.
- Select your State and District.
- Name of your business according to PAN.
- Insert the PAN of your company or owner.
- Enter OTP Verification using email ID and mobile number.
- Fill out the CAPTCHA and press the button Proceed.
4. Check OTPs: Use the OTPs that you received on your email and mobile.
5. Get TRN: A TRN (i.e. Temporary Reference Number) will be created and emailed to your contact information. This figure is to be saved till later.
Part B: Submitting the Application
1. Log in using TRN: Go back to the GST portal, select Register Now, and then select Temporary Reference Number (TRN).
2. Application: Accept your application through your CAPTCHA and TRN.
3. Fill in the Application Form: Fill in all ten parts, including:
- Business type and structure
- Promoters/directors' information.
- Approved information of the signatories.
- Main and other company offices.
- Goods and services supplied
- Bank account details (compulsory)
4. Upload Documents: Upload all the necessary documents depending on your line of business.
5. Form Submission: It is necessary to submit the Form with the help of a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).
Post-Submission Process
1. Application Reference Number (ARN): After the submission, an ARN will be received and forwarded to your mailbox and phone. You may then use it to monitor your application status.
2. Checking: One of the GST officers will review your response and the documents uploaded.
3. Query or Approval:
- In case of any problems, you will be issued a query through Form GST REG-03. Respond within 7 days of work with Form GST REG-04.
- In case all is well, the officer will grant your application.
4. Received GSTIN: You will be registered with a Certificate of Registration that will be in the form of GST REG-06 and will contain your unique GSTIN.
Thresholds For GST Registration:
- Goods: Firms whose yearly turnover is above INR 40 lakh (INR 20 lakh in the case of special category states) are required to be registered3.
- Services: The service providers having a turnover of more than INR 40 lakh (INR 20 lakh in case of special category states) should be registered.
Special Cases:
- Goods supply/service between states.
- E-commerce operators
- Casuals and non-residents who are taxable.
- The companies that were to gather TCS (Tax Collected at Source) during GST.
Businesses are issued a GSTIN (Goods and Services Tax Identification Number), a 15-digit code that is used in all GST compliance, invoicing, and returns filing.
2. E-way Bill
Movement of goods worth above INR 50000 requires an E-way bill. It is an online record with the information about goods, consignor, and consignee that allows the authorities to trace the shipment and avoid tax fraud4.
Key Points:
- Necessary in order to transport goods over the threshold for interstate and intrastate.
- Created in the E-way Bill portal.
- Should not leave the goods unaccompanied; otherwise, punishments will be imposed.
3. E-invoicing
E-invoicing standardises business-to-business (B2B) transactions reporting. There are turnover limits in e-invoicing that are mandatory; according to Budget 2025, they have been changed as follows:
- New threshold: Businesses whose annual turnover exceeds INR 20 crore have to submit invoices electronically through the Government Invoice Registration Portal (IRP)5.
- Benefits:
- Automated production of GST returns.
- Increased speed of processing of the Input Tax Credit.
- Fewer errors and reconciliation problems.
4. Importance Of GSTIN For Compliance
GSTIN is essential to each registered taxpayer, It:
- Testimonies as evidence of registration of GST.
- Allows the claiming and passing of Input Tax Credit (ITC).
- It is obligatory to submit monthly/ quarterly GST returns.
- Allows interstate trade and the issuance of the E-way bill.
Failure to comply with GST registration and its associated regulations may result in penalties, non-claim of ITC and legal hassles. Smooth operations and compliance with regulations can be achieved due to proper registration and compliance with e-way bill and e-invoicing norms.
GST vs Pre-GST
| Feature | Pre-GST Regime | Post-GST Regime (with 2025 Updates) |
| Basis of Levy | origin-based tax (tax which is raised by the state in which goods/services were produced/sold). | Destination-based tax (tax imposed on consumption point where the revenue is divided between the states and the centre). |
| Tax structure | Shredded with a number of levies by the Central and State government: Central Excise Duty, Service Tax, Customs Duty, State Value-Added Tax (VAT), Central Sales tax (CST), Entry Tax, Luxury Tax, Entertainment tax, etc. | One centralised system, CGST (Central GST), SGST (State GST) and IGST (Integrated GST) on inter-state sales. Simple rates that apply on September 22, 2025: 5, 0, 18 and a new 40 per cent on luxury goods. Cuts off basic necessities and simplifies the tax on the majority of goods and services. Some of the taxes, such as excise on petroleum products and alcohol, are not subject to GST. |
| Cascading effect | Important due to tax on tax at various stages. To illustrate, VAT was imposed on a price which has excise duty and thus a consumer will be charged a higher price. There was a tendency to limit or disallow input tax credit between different taxes. | An Input Tax Credit, which is eliminated, is offered at all levels in the chain of supply, where businesses can offset the tax paid on inputs against the tax payable on outputs. This lowers the ultimate price of the goods and services to the consumer. |
| Compliance | Complex in various ways because of the state-specific tax laws, different rates and multiple returns. Necessary contact with various tax agencies. Assessment and refunds were done offline. | Streamlined and having only one national portal in which to register, file returns and pay. E-invoicing and e-way bills are processes that are obligatory for those businesses that satisfy certain turnover requirements, which are mandatory after April 1, 2025. Businesses with an AATO of more than INR 10 crore should make invoice reporting within 30 days after the document date. |
| Inter-state trade | Hindered by CST, Entry Tax, and the absence of smooth ITC. | Smoother with IGST, which enables the movement of goods and services across state boundaries without extra charges such as CST or Entry Tax. E-way bills facilitate the flow and minimise checkpoints. |
| Tax base | Narrower compared to GST. Distinct registration requirements for various taxes. | Broadened because GST is applied to goods and services. Higher registration requirements on goods ( INR 40 lakh) and services ( INR 20 lakh) in most states. Fewer thresholds are in special category states. |
| Transparency | Reduced because of disjointed system and manual processes. | Increased because of internet operations and other additions such as e-invoicing. Online verification and matching of input tax credit are done online. |
Major Tax Structure Reforms
- New 2-Rate Structure: Transition from 4-tier to simplified structure
- Standard Rate: 18%
- Merit Rate: 5%
- De-merit Rate: 40% (select items)6
Key Rate Changes By Sector
1. Food & Consumer Items
- 0%: UHT milk, paneer, breads (chapati, roti, paratha) (Indian).
- 12%/18% to 5%: Packaged foods (namkeens, sauces, pasta, chocolates, coffee)
2. Hair care & personal items: Hair oil, shampoo, toothpaste, soap bars reduced to 5%
3. Health Sector
- Life & Health Insurance: Complete GST exemption on all individual policies
- Medicines: 33 lifesaving drugs to NIL rate, other medicines 12% to 5%
- Medical equipment: Various reductions from 18% to 5%
4. Transportation & Automotive
- 28% to 18%: Small cars ?350cc motorcycles, buses, trucks, ambulances
- Auto parts: Uniform 18% rate regardless of HS code
5. Agriculture
- 12% to 5%: Tractors, agricultural machinery, fertilizer chemicals
6. Services
- Hotel accommodation: ?INR 7,500/day reduced to 5%
- Transport services: Various increases from 12% to 18%
Implementation Timeline
- Services: September 22, 2025
- Most goods: September 22, 2025
- Tobacco products: Deferred until compensation cess obligations are cleared
Conclusion
The Goods and Services Tax (GST) has revolutionized India's indirect tax system, driving a significant increase in the registered taxpayer base and simplifying compliance. Following the 2025 GST reforms, India now has a streamlined two-rate structure, reducing tax burdens on essential goods and services while supporting key sectors like agriculture, healthcare, and MSMEs. To explore more about GST, tax planning, and investment opportunities sign up on Grip Invest now.
Frequently Asked Questions On Goods And Service Tax
1. Who administers indirect tax in India?
The administration of indirect tax in India is done by the Central Board of Indirect Taxes and Customs (CBIC). It deals with the collection and administration of customs and central excise duties. It operates under the revenue department of the Ministry of Finance, Government of India.
2. Who introduced GST in India?
The Constitution Amendment Bill was introduced in parliament, then the Goods and Service Tax (GST) Act, 2017, was imposed on July 1, 2017. It was presented by then Union Finance Minister Mr. Arun Jaitley.
3. Which are the various forms of GST?
- GST in India can be of four kinds:
- CGST: This is a tax collected by the Central Government on intra-state supplies.
- SGST: Tax that is imposed on intrastate supplies by the State Government.
- IGST: Inter-state supplies, which are gathered by the Central Government.
- UTGST: Union Territories that lack legislatures, such as Chandigarh or the Andaman and Nicobar Islands.
4. What is the GST rate in India?
There are various slabs of Goods and Services Tax (GST) within India, which are 0/ 5/ 12/ 18/ 28/ 40, and this depends on the nature of commodities or services. The exemption will apply to necessities like fresh milk (0%), and luxuries like cars and aerated drinks will be taxed at 40%.
5. Who needs to register for GST?
GST registration is compulsory for:
- Businesses with an annual turnover above INR 40 lakh (for goods).
- Service providers with turnover above INR 20 lakh.
- Businesses in special category states with turnover above INR 10 lakh.
- E-commerce operators, inter-state suppliers, and businesses falling under compulsory registration rules.
6. What are the GST rate slabs?
India’s GST system has five major slabs:
- 0%: Fresh milk, fruits, vegetables
- 5%: Railways, non-AC restaurant services, packaged food items
- 12%: Mobile phones, processed food
- 18%: AC restaurants, cosmetics, services
- 40%: luxury Cars, luxury goods, aerated drinks
These slabs are structured to keep essentials affordable while taxing luxury and non-essential items at higher rates.
References:
1. Clear Tax, accessed from: https://cleartax.in/s/gst-collection-may-2025
2. India Filings, accessed from: https://www.indiafilings.com/learn/gst-exemption-limit-in-india/
3. Razor Pay, accessed from: https://razorpay.com/learn/gst-registration-limits/#:~:text=Goods/Providing%20Services,1st%20April%202019
4. India Filings, accessed from: https://www.indiafilings.com/learn/eway-bill-limit/#:~:text=E%2DWay%20Bill%20Limit%20Under,50%2C000%20to%20%E2%82%B92%2C00%2C000
5. Clear Tax, accessed from: https://cleartax.in/s/e-invoicing-businesses-above-rs-20-crore-turnover#:~:text=SHARE-,e%2DInvoicing%20for%20businesses%20above%20Rs.20%20crore%20turnover,-By%20Annapoorna
6. GST Council, accessed from: https://gstcouncil.gov.in/sites/default/files/2025-09/press_release_press_information_bureau.pdf
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