Introduction
The Goods and Services Tax (GST) is India’s unified indirect tax, implemented nationwide on 1st July 2017. It replaced a complex mix of earlier state and central taxes—like VAT, excise duty, and service tax—with a comprehensive, destination-based system. Levied on the supply of goods and services, GST simplifies compliance, removes the cascading effect of taxes, and supports economic growth.
What is GST?
GST is a multi-stage, destination-based tax imposed at each value addition stage in a product or service supply chain. At every transaction, it’s charged only on the incremental value added, ensuring transparent pricing and enabling seamless input tax credit (ITC) for businesses.
Origins and Key Milestones
| Year | Milestone |
|---|---|
| 2000 | Committee set up to draft GST law |
| 2006 | Proposed launch by 2010 |
| 2017 | GST Act passed; GST rolled out nationwide on 1st July |
Objectives of GST
- Unified Indirect Tax System – Merges multiple central and state taxes under one structure.
- Removes Cascading Effect – Input tax credit prevents double taxation.
- Minimises Tax Evasion – Technology-driven filings, e-invoicing, and transparent tracking.
- Wider Tax Base – Brings more businesses into the formal system.
- Boosts Ease of Doing Business – Fully electronic registration, filing, and refunds.
How GST Works: Example
A biscuit manufacturer buys raw materials like flour and sugar, bakes biscuits, and sells them to a warehouse. The warehouse adds packing value and sells them to retailers, who finally sell to consumers. GST is levied at each stage only on the value added, with ITC available, reducing the final cost for the customer.
Comparison: Pre-GST vs GST
| Stage | Cost (₹) | Tax Rate | Pre-GST Tax | GST (Paid by Stage) |
|---|---|---|---|---|
| Manufacturer | 1,000 | 10% | 100 | 100 |
| After Warehousing | 1,300 | 10% | 140 | 30 |
| After Retail Packing | 1,800 | 10% | 204 | 50 |
| Total | 444 | 180 |
Result: GST reduces the effective total tax burden.
GST Structure
- CGST – Collected by the Centre for intra-state transactions.
- SGST/UTGST – Collected by State/UT for intra-state transactions.
- IGST – Collected by the Centre for inter-state transactions and imports.
| Transaction Type | Applicable GST | Revenue Sharing |
|---|---|---|
| Within a State | CGST + SGST | Centre & State |
| Between States/Exports | IGST | Centre & destination State |
GST Rates in 2025
| Slab | Examples |
|---|---|
| 0% | Milk, eggs, health services |
| 5% | Tea, edible oils, domestic LPG, life-saving drugs |
| 12% | Butter, processed food, computers |
| 18% | Hair oil, capital goods, soap, toothpaste |
| 28% | Luxury cars, ACs, cigarettes |
| Special | 0.25% (unworked precious stones), 3% (gold, jewellery) |
GST Cess – Additional tax on certain luxury and sin goods.
Taxes Subsumed Under GST
| Subsumed Taxes | Still Outside GST |
|---|---|
| Central Excise Duty | Basic Customs Duty |
| Service Tax | Taxes on alcohol & tobacco |
| State VAT | Stamp Duty, Electricity Duty |
| Central Sales Tax | Property Tax, Vehicle Tax |
Key GST Features
- E-Way Bills – Mandatory for transport beyond threshold distances.
- E-Invoicing – Now required for B2B businesses above ₹5 crore turnover.
- Input Tax Credit – Automated matching through supplier filings.
- Online Returns & Refunds – Via the GST portal.
- Centralised Compliance – Single portal for registration, payment, and filings.
Compliance Checklist for Businesses
- Register for GST if above threshold turnover.
- File GST returns on time (GSTR-1, GSTR-3B, etc.).
- Issue GST-compliant invoices with HSN/SAC codes.
- Keep digital records ready for audits.
- Pay dues online within prescribed timelines.
FAQs
Who needs to register for GST?
Any business crossing turnover thresholds, e-commerce operators, inter-state suppliers, and certain specified categories.
How are GST rates decided?
The GST Council reviews rates periodically to ensure fairness and economic alignment.
What are the key benefits of GST?
It removes the cascading tax effect, reduces costs, creates a unified market, and streamlines compliance.
Conclusion
Since its launch, GST has transformed India’s indirect tax system. It’s made taxation more transparent, compliance more predictable, and business operations smoother.
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