What is GST? A Plain-English Introduction

The Goods and Services Tax (GST) is a single indirect tax levied on the supply of goods and services in India, in effect since 1 July 2017. Before GST, a product could attract excise duty, VAT, service tax, entry tax and several other levies at different stages — often calculated on top of each other. GST replaced that stack with one tax, collected at every stage of the supply chain, with credit given for tax already paid at earlier stages.

The three components of GST

• CGST (Central GST) — collected by the central government on an intra-state sale.
• SGST (State GST) — collected by the state government on the same intra-state sale, alongside CGST.
• IGST (Integrated GST) — collected by the central government on an inter-state sale, later apportioned between the states involved.

For a sale within one state, the applicable GST rate is split evenly between CGST and SGST. For a sale across state lines, the full rate is charged as IGST instead.

Why GST matters for a business

Once a business is registered under GST, it must charge GST on its taxable sales, file periodic returns, and can claim credit (Input Tax Credit, or ITC) for the GST it paid on its own business purchases — reducing the net tax it hands over to the government. Getting registration, invoicing and return filing right isn't optional once a business crosses the registration threshold, and errors carry late fees and interest, covered later in this guide.

Key takeaways

• GST is one tax on supply, replacing multiple older indirect taxes.
• It has three components — CGST, SGST and IGST — depending on whether a sale is within a state or across states.
• Registered businesses charge GST on sales and can claim credit for GST paid on purchases.