Goods and Services Tax (GST): A Complete Guide

Introduction

Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based indirect tax levied on the supply of goods and services in India. It was introduced to replace multiple indirect taxes levied by the Central and State Governments, thereby creating a single unified tax system.

GST came into effect in India on 1st July 2017 under the GST Act, 2017, and is considered one of the biggest tax reforms in Indian history.

What is GST?

GST is a value-added tax that is charged at each stage of the supply chain, from manufacturer to final consumer. However, the tax burden ultimately falls on the end consumer, as businesses can claim Input Tax Credit (ITC) for taxes paid on purchases.

In simple terms:
👉 GST = One Nation, One Tax

Objectives of GST

The key objectives of introducing GST in India are:

To eliminate cascading effect of taxes (tax on tax)
To unify the Indian market
To simplify the indirect tax structure
To increase tax compliance
To boost economic growth
To promote ease of doing business

Taxes Replaced by GST

Before GST, India had multiple indirect taxes. GST replaced the following:

Central Taxes

Central Excise Duty
Service Tax
Additional Excise Duties
Countervailing Duty (CVD)
Special Additional Duty (SAD)

State Taxes

Value Added Tax (VAT)
Central Sales Tax (CST)
Entry Tax
Octroi
Luxury Tax
Entertainment Tax (except on movies by local bodies)

Types of GST

GST is divided into four main types:

1. CGST (Central GST)

Levied by the Central Government
Applicable on intra-state supply of goods and services

2. SGST (State GST)

Levied by the State Government
Applicable on intra-state supply

3. IGST (Integrated GST)

Levied by the Central Government
Applicable on inter-state supply and imports

4. UTGST (Union Territory GST)

Levied in Union Territories without legislature

GST Tax Slabs in India

GST is divided into five major tax slabs:

0% – Essential goods (milk, vegetables, books)
5% – Household necessities
12% – Standard goods
18% – Most services and goods
28% – Luxury and sin goods (cars, tobacco)

GST Registration

Who Should Register Under GST?

Businesses with turnover exceeding:
- ₹40 lakhs (goods)
- ₹20 lakhs (services)
Inter-state suppliers
E-commerce sellers
Casual taxable persons
Input Service Distributors (ISD)

GSTIN (GST Identification Number)

GSTIN is a 15-digit unique identification number issued to registered taxpayers.

GST Returns

Registered taxpayers must file periodic GST returns:

GSTR-1 – Details of outward supplies
GSTR-3B – Monthly summary return
GSTR-9 – Annual return

Returns can be filed monthly or quarterly depending on the business category.

Input Tax Credit (ITC)

Input Tax Credit allows businesses to reduce tax liability by claiming credit for GST paid on purchases.

Conditions to Claim ITC:

Possession of tax invoice
Goods/services received
Supplier has paid GST
Return filed properly

GST Composition Scheme

The Composition Scheme is designed for small taxpayers to reduce compliance burden.

Key Features:

Applicable to small businesses
Lower tax rates
No ITC allowed
Quarterly returns

GST Council

The GST Council is the supreme decision-making body for GST.

Composition:

Union Finance Minister (Chairperson)
State Finance Ministers

Functions:

Decide tax rates
Amend GST laws
Resolve disputes between Centre and States

Advantages of GST

Simplified tax system
Reduced tax burden
Improved compliance
Increased transparency
Boost to economic growth
Seamless input tax credit

Impact of GST on Various Sectors

Manufacturing: Reduced logistics cost
Services: Increased tax rate (from 15% to 18%)
E-commerce: Improved transparency
Consumers: Uniform pricing across states

GST and Digital India

GST is fully technology-driven, requiring:

Online registration
Online return filing
E-invoicing
E-way bills

This promotes transparency and accountability.

Challenges in GST Implementation

Frequent rule changes
Technical glitches
Lack of awareness
Compliance burden

Future of GST in India

The government continues to:

Simplify return filing
Rationalize tax rates
Improve GST portal efficiency

GST is expected to play a crucial role in India’s economic development.

About the Author

Ravi

Ravi is a seasoned legal writer who simplifies complex laws into clear, actionable insights, helping entrepreneurs understand their legal responsibilities and build compliant, confident, and sustainable businesses.

January 8, 2026