How GST works

The Goods and Services Tax came into force on 1 July 2017, after the 101st Amendment to the Constitution. It replaced a tangle of central and state taxes — excise duty, service tax, state VAT, entry tax and others — with one tax on the supply of goods and services.

Tax on value added, stage by stage

GST is charged at each step from the factory to the shop. At each step, a business can claim credit for the GST it has already paid on its own purchases (the input tax credit), so in effect the tax falls on the value added at that stage. The full burden is carried by the final consumer, and is included in the price you pay.

Who gets the money

• Within a state, the tax is split equally into central GST (CGST) and state GST (SGST) — or union territory GST.
• Between states, and on imports, the Centre collects integrated GST (IGST) and shares it with the state where the goods or services are consumed. GST is a destination tax: the revenue follows the buyer, not the seller.

Who sets the rates

The GST Council (Article 279A), chaired by the Union Finance Minister and including the finance ministers of the states, recommends rates and rules. Decisions need a three-quarters majority of weighted votes; the Centre’s vote counts for a third and the states’ together for two-thirds, so neither can decide alone.

The rates

From 22 September 2025, most goods and services fall into two main rates, 5% and 18%, replacing the earlier four-slab structure. A higher 40% rate applies to a short list of luxury and “sin” goods, many essentials are exempt, and gold and precious stones have special low rates.

What GST does not cover

Alcohol for drinking is outside GST, and petrol, diesel, aviation turbine fuel, natural gas and crude oil are not yet taxed under it; the Centre and states still levy their own taxes on them.

For businesses

Businesses above a turnover threshold must register, issue GST invoices and file regular returns on the GST portal. Smaller businesses can choose a simpler composition scheme.

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