What is GST? Full form, types, and how it works

GST stands for Goods and Services Tax. It is the single indirect tax that India has charged on the supply of goods and services since 1 July 2017, replacing seventeen separate central and state taxes. It is collected at every stage of a supply chain, but because each business claims credit for the tax already paid on its purchases, the tax is borne once, by the final consumer. Since 22 September 2025 it runs on four main rates — Nil, 5%, 18% and 40% — with 3% for precious metals.

GST full form and what it means

The full form of GST is Goods and Services Tax; in Hindi, वस्तु एवं सेवा कर. Both words carry weight. “Goods” are physical things — a mobile phone, a bag of cement, a shirt. “Services” are everything else you pay for that is not a thing — a hotel night, a lawyer’s fee, a software subscription. Before 2017 the two were taxed under different laws by different governments; GST puts them under one Act, one registration and one return, which is why it was sold as “One Nation, One Tax”.

It is an indirect tax: the business collects it from you inside a price and pays it to the government. Income tax, by contrast, is a direct tax that you pay on what you earn.

When was GST implemented in India?

GST came into force on 1 July 2017, launched at a midnight session of Parliament on 30 June. The legal foundation is the Constitution (One Hundred and First Amendment) Act, 2016, which gave both the Centre and the states the power to tax the same supply at the same time — something the original Constitution did not allow — and created the GST Council under Article 279A to set the rates.

The idea was much older. A single national goods-and-services tax was first proposed in 2000, a target date of 2010 was announced in the 2006 Budget, and the constitutional amendment took a further decade of negotiation between the Centre and the states over who would collect what.

Which taxes GST replaced

The reason a single tax was worth a decade of argument is what it replaced. A product crossing state lines before 2017 could attract all of the following.

Three things stayed outside GST and still are: petrol, diesel and other petroleum products, alcohol for human consumption, and electricity. Each is taxed separately by the states, which is why fuel prices differ by state and why a bar bill treats food and drink differently.

The types of GST: CGST, SGST, UTGST and IGST

GST is a dual tax. On any supply the total rate is split between the Centre and a state, and which combination applies depends only on whether the supply crosses a state border.

An 18% supply inside Delhi is billed as 9% CGST plus 9% SGST. The same supply from Delhi to Mumbai is billed as 18% IGST. The buyer pays the same total either way; only the split on the invoice changes. What decides it is the place of supply — for goods, usually where they are delivered — not where the two parties happen to live.

How GST works: the credit chain

The mechanism that makes GST different from the taxes it replaced is input tax credit. Every registered business pays GST on what it buys and charges GST on what it sells, and hands the government only the difference. Follow ₹1,000 of goods through a chain at 18%:

The consumer pays ₹360 of tax on a ₹2,000 purchase — exactly 18% — and the government receives exactly ₹360, collected in three instalments along the chain. Nobody is taxed on tax. Under the old system, where VAT was charged on an excise-inclusive price, that cascading was routine.

What is ITC in GST?

ITC is input tax credit: the right to reduce the GST you owe on your sales by the GST you have already paid on your purchases. The wholesaler above owed ₹270 but paid only ₹90, because ₹180 was ITC. It is the single most valuable feature of GST for a business, and the most policed.

Four conditions under Section 16 of the CGST Act have to hold before credit can be claimed: you hold a valid tax invoice, you have actually received the goods or services, the supplier has paid the tax and reported the invoice in their return, and you have filed your own return. If the supplier fails to report the invoice, the credit does not appear in your GSTR-2B and cannot be claimed — which is why choosing compliant suppliers is a financial decision, not an administrative one.

Some credit is blocked under Section 17(5) regardless: GST on cars for personal or general business use, on food and beverages, on club memberships, on construction of your own premises, and on goods given away free. And several 5% rates — restaurant food and hotel rooms up to ₹7,500 among them — are offered only on condition that the business forgoes ITC altogether.

What is RCM in GST?

RCM is the reverse charge mechanism. Normally the seller collects GST and pays it. Under reverse charge the buyer pays it directly to the government instead, and then claims it back as ITC if eligible. It exists for situations where collecting from the seller is impractical.

• Notified goods and services under Section 9(3) — for example, a registered business receiving services from an advocate, a goods transport agency or a company director, or buying raw cotton or unshelled cashew from an agriculturist.
• Imported services — a freelancer paying for Adobe, AWS or overseas advertising pays 18% under reverse charge, because the foreign supplier cannot charge Indian GST.
• Certain unregistered suppliers under Section 9(4), for notified categories such as a builder buying cement from an unregistered dealer, and commercial rent from an unregistered landlord since 10 October 2024.
• E-commerce operators under Section 9(5) — since 1 January 2022, Zomato and Swiggy pay the 5% on restaurant orders placed through them, not the restaurant.

Two practical consequences. Reverse charge tax must be paid in cash — it cannot be set off against existing credit — and anyone liable under it must register for GST regardless of turnover. Our freelancer guide covers how this catches people out.

GST rates in 2026

The rate structure was overhauled on 22 September 2025, in the reform widely called GST 2.0. The old 12% and 28% slabs were withdrawn.

For the exact rate on a specific product, with its HSN code and a calculator set to it, use the rate finder. For the arithmetic, see how to calculate GST.

How is GST calculated?

Multiply the taxable value by the rate and divide by 100. A ₹10,000 supply at 18% carries ₹1,800 of GST, billed as ₹900 CGST + ₹900 SGST within a state or ₹1,800 IGST across states. To find the tax inside a price that already includes it, multiply by the rate and divide by 100 plus the rate: ₹11,800 × 18 ÷ 118 = ₹1,800. Worked examples at every slab, mixed-rate invoices and gold are in how to calculate GST, and the calculator does it live.

What is a GST number (GSTIN)?

Every registered business gets a GSTIN — a 15-character Goods and Services Tax Identification Number that must appear on every invoice. It is not random; each part is readable.

Because the first two digits are the state, you can tell where a supplier is registered from the GSTIN alone. The full list, and a decoder that validates the check digit, is on our GST state code page.

Who has to register

Registration is compulsory once aggregate turnover in a financial year crosses ₹40 lakh for goods or ₹20 lakh for services. The goods limit is ₹20 lakh in Arunachal Pradesh, Meghalaya, Sikkim, Uttarakhand, Puducherry and Telangana, and both limits are ₹10 lakh in Manipur, Mizoram, Nagaland and Tripura. Registration is compulsory from the first rupee, regardless of turnover, for anyone selling through an e-commerce operator that collects tax at source, anyone liable under reverse charge, and agents supplying on behalf of others. Below the threshold it is voluntary — and often worth it when your customers are themselves registered, because they can claim your GST as credit.

Returns, in one paragraph

A registered business files GSTR-1 to report its sales invoice by invoice, and GSTR-3B to summarise and pay the tax, either monthly or quarterly under the QRMP scheme. An annual GSTR-9 reconciles the year. The due dates recur on fixed days each month; our tax calendar works them out from today’s date.

The GST Council

Rates are not set by the Finance Ministry alone. The GST Council, created by Article 279A, has the Union Finance Minister as chair and a minister from every state and union territory as members. Decisions need a three-quarters weighted majority, with the Centre holding one-third of the vote and the states two-thirds together — so neither side can change a rate without the other. Every rate on this site traces back to a Council decision and the CBIC notification that implemented it.

Common questions