Goods and Services Tax (GST) is India’s biggest indirect tax reform since independence. Launched on 1st July 2017, GST replaced 17+ old taxes and cesses (like VAT, Service Tax, Excise, CST, etc.) with a single unified tax system.
In simple words: GST is a destination-based tax that you pay on almost every product and service you buy or sell in India.
As of 2025, more than 1.4 crore businesses are registered under GST, and every month ₹1.8–2 lakh crore collection is happening. Whether you are a student preparing for CA/CS/CMA, a small business owner, a freelancer, or just a curious citizen – understanding GST is now compulsory.
1. Four Main Types (Components) of GST in India
| Type | Full Form | Collected By | Used By | Example |
|---|---|---|---|---|
| CGST | Central Goods & Services Tax | Central Govt | Central Govt | Goes to Union Budget |
| SGST | State Goods & Services Tax | State Govt | State Govt | Goes to State Treasury |
| IGST | Integrated Goods & Services Tax | Central Govt | Shared between Centre & States | For inter-state supply |
| UTGST | Union Territory GST | Central Govt | Union Territories | Delhi, Jammu & Kashmir, Puducherry etc. |
Rule of thumb:
- Intra-state supply (within same state) → CGST + SGST/UTGST
- Inter-state supply → IGST only
2. Current GST Rates in India (Updated December 2025)
| Rate | Items / Services | Examples |
|---|---|---|
| 0% (Nil) | Essential items | Fresh milk, unpacked food grains, fresh fruits & vegetables, salt, jaggery, sanitary napkins, judicial stamp paper, printed books, bindi, sindoor, bangles (non-precious metal) |
| 5% | Daily needs & mass consumption | Packed paneer, tea, coffee, spices, edible oils, sugar, PDS kerosene, coal, cashew nuts, footwear <₹1000, apparel <₹1000, agarbatti, domestic LPG, fish fillet, insulin, railway tickets |
| 12% | Mid-range items | Butter, ghee, cheese, dry fruits, namkeen, ayurvedic medicines, mobile phones, sewing machines, umbrella, business class air tickets |
| 18% | Most common rate (majority items) | Hair oil, toothpaste, soap, pasta, corn flakes, ice-cream, chocolates, computers, printers, CCTV, AC & non-AC restaurants, telecom services, branded garments >₹1000 |
| 28% | Luxury & sin goods | Luxury cars, aerated drinks, tobacco products, pan masala, AC hotels & restaurants that serve alcohol, 5-star hotels, cement, paint, washing machine, ATM, chocolate with filling, motorcycles |
Special rates:
- Gold & precious stones → 3%
- Rough diamonds → 0.25%
- Real estate (affordable housing) → 1%, others →5% (without ITC)
3. Who Must Register Under GST?
| Category | Turnover Limit (2025) | Mandatory? |
|---|---|---|
| Normal category states | > ₹40 lakh (goods) / ₹20 lakh (services) | Yes |
| Special category states (North-East, J&K, etc.) | > ₹20 lakh (goods) / ₹10 lakh (services) | Yes |
| E-commerce sellers | No threshold | Compulsory |
| Inter-state suppliers | No threshold | Compulsory |
| Input Service Distributor (ISD) | Any turnover | Compulsory |
| Reverse charge cases | Any turnover | Compulsory |
Voluntary registration is also allowed (helpful to claim ITC even if below threshold).
4. Input Tax Credit (ITC) – The Heart of GST
ITC is the biggest benefit of GST. It removes “tax on tax” (cascading effect).
Simple Example: You are a furniture manufacturer
- You buy wood → Pay ₹18,000 GST (18%)
- You sell table for ₹1,00,000 + ₹18,000 GST
- You deposit only ₹18,000 – ₹18,000 = ₹0 to government → You saved ₹18,000 because of ITC
Rules for claiming ITC (Section 16–18):
- Must have valid tax invoice/debit note
- Supplier must have uploaded the invoice in his GSTR-1
- Goods/services must be used for business purpose only
- ITC blocked on: motor vehicles (except for resale/transport), food, health insurance, club membership, works contract for immovable property, etc.
- From 2025: ITC auto-populated in GSTR-2B – no need to manually enter.
5. GST Return Filing Process – Step-by-Step (2025 Latest)
| Return | Who Files | Due Date | Details |
|---|---|---|---|
| GSTR-1 | Regular taxpayers | 11th of next month (monthly) or quarterly (QRMP) | Outward supplies (sales) |
| GSTR-3B | All regular taxpayers | 20th of next month (monthly) or 22nd/24th (quarterly) | Summary return + tax payment |
| GSTR-9 | Turnover > ₹2 crore | 31st December next FY | Annual return |
| GSTR-9C | Turnover > ₹5 crore | 31st December next FY | Reconciliation statement with audit |
| GSTR-4 | Composition dealers | 30th April next FY | Annual return |
| GSTR-8 | E-commerce operators | 10th of next month | TCS details |
QRMP Scheme (Quarterly Return Monthly Payment):
- Turnover < ₹5 crore can file GSTR-1 & GSTR-3B quarterly
- But must pay tax monthly via PMT-06 (35% challan option available)
Late fees (2025):
- GSTR-1 & 3B: ₹50/day (₹20/day for nil return)
- Max ₹10,000
6. E-Way Bill & E-Invoicing (Mandatory Cases)
| Requirement | Threshold | From When |
|---|---|---|
| E-Way Bill | Goods > ₹50,000 (inter-state always) | 01 Apr 2018 |
| E-Invoicing | Turnover > ₹5 crore (B2B invoices) | 01 Oct 2023 |
7. Common GST Mistakes That Cost Lakhs (Don’t Do These)
- Wrong GSTIN on invoice (₹10,000 penalty)
- Not filing NIL return also attracts late fee
- Claiming ITC without supplier uploading invoice
- Showing sales in wrong GST rate slab
- Not issuing invoice for advance received
- Using personal expenses to claim ITC
Final Words
GST has made tax system transparent, reduced corruption, and made doing business across states easier. For small businesses and freelancers, the biggest advantage is Input Tax Credit and Composition Scheme (1–6% flat tax without ITC).
If you are starting a new business in 2025:
- Get GST registration within 30 days of crossing limit
- Use free government GST portal or affordable software (ClearTax, Tally, Vyapar)
- Keep invoices properly – they are your ITC proof
- File returns on time – even if NIL
GST is no longer “complicated” – it is now part of daily life. Understand it once, save lakhs every year.
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