Goods and Services Tax (GST) in India: The Basics You Must Know

Introduction: Why GST Matters to You

Let’s start with an example in our daily life.

You are sipping chai/tea at your local tea stall. The vendor tells you the price is ₹10 per cup. You hand him a ₹10 coin, very simply. But in reality, before GST was introduced, that same cup of chai/tea might have been subject to excise duty, service tax, VAT, and a dozen other hidden levies. Neither you nor the chaiwala/teawala truly knew how much tax was baked into that price.

That’s why GST came into existence—to simplify India’s messy tax system and make it transparent for everyone, from the chaiwala/teawala to the corporate CEO.

What is GST?

The full form of GST is Goods and Services Tax, a comprehensive indirect tax that replaced a major path of central and state taxes in India. It was rolled out on 1st July 2017, and since then, it has been called “One Nation, One Tax.”

Instead of multiple taxes at different stages of production and sale, GST ensures that you pay a single unified tax on goods and services.

• For easy understanding
  GST = All indirect taxes merged into one.

The Story Before GST: India’s Old Tax Jungle

Before GST, India’s tax system was like an overcrowded vegetable market. Too many sellers, too many rates, and lots of confusion.

Here’s what existed before GST:

• Central taxes: excise duty, service tax, and customs duty.
• State taxes: VAT (Value Added Tax), entry tax, octroi, luxury tax, entertainment tax, and purchase tax.
• Other cases and surcharges.

Example: Buying a Shirt Before GST

Let’s say you bought a shirt worth ₹1,000.

• The manufacturer paid excise duty on production.
• The wholesaler paid VAT when selling to the retailer.
• The retailer added service tax (if delivery was included).

By the time you, the customer, bought the shirt, the price had risen by 30–40% purely due to cascading taxes.

This problem is called the “tax on tax” effect.

The Objectives of GST

• Remove Cascading Taxes—no more “tax on tax.”
• Simplify Compliance—one digital portal (GSTN) for everything.
• Increase Transparency—customers know what tax they’re paying.
• Boost Revenue—wider tax base by formalizing small businesses.
• Strengthen the Economy—create a uniform national market.

Key Features of GST

• One Tax, One Nation: Same tax law across all states.
• Destination-Based Tax: Tax is collected where goods/services are consumed, not where they are produced.
• Dual Model: Both the center and the states share power (CGST + SGST).
• Input Tax Credit (ITC): Businesses can claim tax credit on their purchases.
• Online Filing: Returns, payments, and compliance through the GST portal.

GST Structure Explained

India adopted a dual GST model because both the central and state governments wanted their share of revenue.

• CGST (Central GST)—collected by the Central Government.
• SGST (State GST)—collected by the State Government.
• IGST (Integrated GST)—for interstate trade, collected by the Center and shared with States.
• UTGST (Union Territory GST)—for union territories without legislatures (like Chandigarh).

GST Tax Slabs in India

GST is levied at multiple rates depending on the type of goods or services.

• 0% – Essential items (milk, rice, fresh vegetables).
• 5% – Basic necessities (edible oil, footwear below ₹1,000, economy class air travel).
• 12% – Processed food, mobile phones, business class air travel.
• 18% – Most goods and services (electronics, restaurants, online streaming).
• 28% – Luxury goods (cars, tobacco, high-end cosmetics).

Fun fact: Gold is taxed at a special rate of 3%, and precious stones at 0.25%.

Example: Chaiwala/Teawala Before and After GST

Before GST:

• Paid VAT on tea leaves.
• Paid service tax if he delivered chai in offices.
• Paid entry tax if buying sugar from another state.

His cup of chai cost ₹10, but he never knew how much of that was tax.

After GST:

• All taxes merged into a single 5% GST.
• Transparent billing.
• Easier compliance through the GST portal.

Now, the chaiwala/teawala knows he’s charging ₹9.50 + 5% GST = ₹10.

Why GST is Called a “Game-Changer”

• It removed 17 indirect taxes and 13 cases.
• It boosted interstate trade by removing border taxes.
• It forced small businesses to go digital and file returns online.
• It made taxation transparent for consumers.

Frequently Asked Questions (FAQs)

Q1. Is GST applicable on petrol and diesel?
👉 No, petroleum products are currently kept outside GST. States continue to levy VAT on them.

Q2. Who collects GST?
👉 Both the center and the states, depending on the transaction.

Q3. Do small businesses have to pay GST?
👉 Businesses with annual turnover above ₹40 lakh (₹20 lakh in special states) must register for GST. Small ones can opt for a composition scheme.

 

Conclusion: The Foundation of GST

The introduction of GST in 2017 was not just a tax reform—it was an economic revolution. It brought uniformity, reduced corruption, and created a level playing field for businesses across India.

But this is just the beginning. In Part 2, we’ll dive deeper into the structure of GST, explore CGST, SGST, and IGST in detail, and understand how the tax slabs impact different industries.

 

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