Key points
- GST is a single indirect tax on the supply of goods and services, with input tax credit along the chain.
- Intra-state sales attract CGST + SGST (shared between centre and state); inter-state sales attract IGST.
- Input tax credit (ITC) lets a registered business offset GST paid on purchases against GST collected on sales.
- After the rate rationalisation effective 22 September 2025, the main slabs are 5% and 18%, with a 40% rate for specified goods (plus some special rates).
- The exact rate depends on the HSN/SAC classification of the goods or service — check the official rate finder.
GST (Goods and Services Tax) is India’s main indirect tax on the supply of goods and services. It replaced a web of older taxes with one system that follows the goods and services along the supply chain, allowing businesses to claim credit for tax already paid. Here is the plain-language version.
The three components: CGST, SGST, IGST
GST is one tax, but it is collected in parts depending on where the buyer and seller are:
- Intra-state supply (buyer and seller in the same state): the tax is split into CGST (goes to the central government) and SGST (goes to the state government).
- Inter-state supply (buyer and seller in different states): a single IGST is charged instead, which is later apportioned.
The total rate the buyer pays is the same either way — only the internal split differs. If the GST rate on an item is 18%, an intra-state sale is 9% CGST + 9% SGST, while an inter-state sale is 18% IGST.
Input tax credit (ITC)
The feature that makes GST different from older taxes is input tax credit. A registered business can set off the GST it paid on its purchases (inputs) against the GST it collects on its sales (outputs), subject to conditions. The result is that tax is effectively charged only on the value added at each stage, not on the full price again and again.
A worked invoice (illustrative)
Suppose a business in Maharashtra sells goods worth Rs 10,000 (before tax) to a customer in Maharashtra, and the GST rate on these goods is 18%. Because it is an intra-state sale, GST is split:
| Line | Amount |
|---|---|
| Taxable value | Rs 10,000 |
| CGST @ 9% | Rs 900 |
| SGST @ 9% | Rs 900 |
| Invoice total | Rs 11,800 |
If the same sale were to a customer in another state, the invoice would instead show IGST @ 18% = Rs 1,800, for the same total of Rs 11,800.
Now suppose this business had earlier bought inputs and paid Rs 500 of GST on them. Through ITC, it can set that Rs 500 off against the Rs 1,800 GST it collected, and pay the net Rs 1,300 to the government. That is the chain working as intended. (All figures illustrative; your rate depends on classification.)
GST rates after rationalisation
Following the rate rationalisation effective 22 September 2025, the main GST slabs are 5% and 18%, with a 40% rate on specified goods, plus some special rates for particular items. The rate that applies to any given product or service depends on its HSN (for goods) or SAC (for services) classification.
Check the exact rate
Not tax advice
Frequently asked questions
- What is the difference between CGST, SGST and IGST?
- For a sale within the same state (intra-state), GST is split into CGST (central) and SGST (state). For a sale between states (inter-state), a single IGST is charged instead. The total rate is the same either way; only the split differs.
- What is input tax credit (ITC)?
- ITC is the mechanism that stops tax piling on tax. A registered business can reduce the GST it owes on sales by the GST it already paid on its business purchases, subject to conditions. So tax is effectively paid only on the value a business adds.
- What GST rate applies to my product?
- It depends on how the product or service is classified (its HSN or SAC code). After the rationalisation effective 22 September 2025 the main slabs are 5% and 18%, with a 40% rate on specified goods and some special rates. Use the official rate finder on gst.gov.in / cbic-gst.gov.in rather than assuming.
Official sources
- GST portal (gst.gov.in) — Registration, returns and rate finder
- CBIC-GST — Central Board of Indirect Taxes and Customs — GST law, rules and guidance
- PIB — GST rate rationalisation (effective 22 September 2025) — Official announcements on rate changes
Not professional advice