What is GST in India? Indirect Tax Law Explained Simply

India's taxation system went through a massive transformation when the Goods and Services Tax (GST) was introduced. It replaced a web of indirect taxes with a single, unified structure. GST has not only simplified the tax process for businesses but has also boosted transparency and economic efficiency. From your grocery bill to interstate logistics, GST plays a role in almost every transaction.

What is GST?

GST, or Goods and Services Tax, is an indirect tax imposed on the supply of goods and services. It came into effect on 1st July 2017, replacing multiple indirect taxes, like VAT, excise duty, and service tax. GST is levied at each stage of the supply chain and is designed to allow seamless input tax credit at every level. It’s a destination-based, multi-stage tax system that has brought uniformity to India’s tax structure.

GST is collected by both the central and state governments, depending on the nature of the transaction. On the other hand, State Goods and Services Tax (SGST) applies to intra-state sales, with half the tax going to the state government.

Types of GST in India

There are four components under the GST system:

1. CGST (Central GST): Collected by the central government for intra-state sales.
2. SGST (State GST): Collected by the state government for intra-state sales.
3. IGST (Integrated GST): Collected by the central government for inter-state transactions and later shared with states.
4. UTGST (Union Territory GST): Applicable in union territories like Delhi and Chandigarh, and collected by the Union government.

Also Read : Stamp Duty & Registration Charges In India 2025

How Does GST Work in India?

GST operates through a chain of input and output taxes. When a supplier sells goods or services, they charge GST to the buyer. The buyer can then claim an Input Tax Credit (ITC) for the tax paid if they are also GST registered. This mechanism eliminates the cascading effect of taxes, where previously, taxes were levied on top of other taxes.

For example:

1. Manufacturer pays GST on raw materials.
2. Wholesaler pays GST on buying finished goods but claims input credit.
3. The retailer pays GST again but can claim previous credits.

In the end, tax is only paid on the value added at each stage.

Key Features of GST

1. Single Indirect Tax: GST replaces multiple indirect taxes with one unified tax across the country.

2. Four-Tier Tax Structure: GST is levied under four main slabs: 5%, 12%, 18%, and 28%, depending on the type of goods or services.

3. Input Tax Credit (ITC) System: Businesses can claim credit for the GST paid on purchases used in their operations.

4. Digital Compliance: Online registration, e-way bills, e-invoicing, and return filing simplify the process.

5. Consumption-Based Tax: GST is collected by the state where the goods or services are consumed, not where they are produced.

Benefits of GST for Businesses and Consumers

1. Simplified Tax System: Multiple taxes like VAT, CST, service tax, excise, etc., are now unified.
2. Lower Tax Burden: Removal of cascading taxes reduces the final price for consumers.
3. Wider Tax Base: More businesses now come under the tax umbrella, increasing government revenue.
4. Ease of Doing Business: Common tax laws and digital processes have made compliance easier.

GST Registration and Compliance

Any business with an annual turnover above ₹40 Lakh (₹10 Lakh for North-East and hill states) must register for GST. For service providers, the threshold is ₹20 Lakh. Voluntary registration is also allowed.

Basic compliance requirements include:

1. Monthly/quarterly return filing
2. Invoice generation with GSTIN
3. Payment of taxes by due dates
4. E-way bills for transport of goods over ₹50,000

Also Read : Old Tax Regime vs. New Tax Regime

Common Misconceptions about GST

1. GST is a central tax only

It’s a dual tax collected by both the Centre (CGST/IGST) and States (SGST/UTGST).

2. GST increased the price of all goods

While some prices have increased, many essential goods are taxed at 0% or 5%.

3. Only big businesses need to comply.

Even small businesses and online sellers need GST registration based on turnover.

Conclusion

GST has been a game changer in India’s taxation journey, replacing multiple indirect taxes with a simplified, transparent system. Whether you’re a consumer, a business owner, or someone planning to expand operations with the help of a business loan, understanding what GST is and how it works empowers better financial decision-making. With digital filing, input credits, and unified rates, GST not only reduces compliance hassles but also contributes to economic growth. It’s more than just a tax; it’s the backbone of India’s modern trade framework. For business owners, tools like a Business Loan EMI Calculator can further support smarter financial planning by helping estimate repayment capacity based on GST-compliant income records.

FAQs

Q.1. What is the CGST rate?

A. The CGST rate is typically half of the total GST rate. For example, if the GST is 18%, the CGST rate is 9%.

Q.2. When is CGST applicable?

A. CGST is applicable on intra-state supplies—when goods or services are sold within the same state.

Q.3. Who collects CGST in India?

A. The Central Government collects CGST on intra-state transactions.

Q.4. What is the CGST percentage?

A. The CGST percentage varies by product or service but commonly falls under slabs like 0.125%, 1.5%, 2.5%, 6%, 9%, or 14%, depending on the applicable GST rate.

Disclaimer:

The contents of this article are for information purposes only & not a financial advisory. For more details, please refer to the product or service document and/ or connect with our customer representative prior to making any financial decision. The information is subject to update, completion, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

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