GST explained: what it is, the slabs and how it works in India, for GK

What GST is, and what it replaced

GST is an indirect tax, meaning it is paid by the final consumer but collected by businesses along the supply chain. Before GST, India had a maze of indirect taxes: central excise duty and service tax at the Centre, and value added tax, octroi and entry tax in the states. Because tax was charged on tax at each stage, a problem called cascading, the final price carried hidden layers of tax.

GST was introduced through the 101st Constitution Amendment Act, 2016, and took effect on 1 July 2017 under the slogan 'One Nation, One Tax'. The GST Council, made up of the Union Finance Minister and representatives of all states and Union Territories, recommends rates, exemptions and procedures. Alcohol for human consumption stays outside GST, and GST on petroleum products such as petrol and diesel applies only from a date the Council recommends, so those items still carry other taxes.

How GST works: destination-based tax and input tax credit

GST is destination-based: the tax revenue broadly goes to the state where the goods or services are consumed, not where they are produced. It is also multi-stage, charged at each step from manufacturer to wholesaler to retailer, but only on the value added at that step. That is possible because of input tax credit (ITC): a business subtracts the GST it paid on its inputs from the GST it collects on its sales, and pays only the difference. ITC is what removes the old tax-on-tax effect.

GST has a dual structure. On a sale within one state, the tax splits into Central GST (CGST) for the Centre and State GST (SGST) for the state, each half the total rate. On a sale between states, or on imports, the whole amount is charged as Integrated GST (IGST), collected by the Centre and apportioned to the destination state. Exports are zero-rated, meaning no GST is charged on the export itself, so Indian goods do not carry domestic tax into foreign markets.

The slabs after GST 2.0 (from 22 September 2025)

Rates are set by the GST Council and change from time to time, so the slabs below are the position after the GST 2.0 rationalisation that took effect on 22 September 2025, following the 56th GST Council decision, as described in the sources opened for this article. The old 12% and 28% slabs were removed for most items: most former 12% items moved to 5%, most former 28% items moved to 18%, and luxury and sin goods moved to 40%.

The main rates are now: nil (0%) for essentials such as fresh food, unbranded flour, milk, eggs, printed books and select life-saving items; 5% for daily necessities such as packaged foods, edible oils, sugar, tea, many medicines, toothpaste and soap; 18% as the standard rate for most goods and services, including electronics, vehicles up to 350cc, cement, telecom and financial services; and 40% for select luxury and sin goods such as tobacco and pan masala, aerated drinks, large cars, big motorcycles, yachts and casinos. Special rates continue for precious metals, including 3% on gold and 0.25% on rough diamonds. Small businesses below a turnover threshold, 40 lakh rupees for goods and 20 lakh for services in most states, are exempt from registration. Always check the current CBIC notification for a specific product, since rates follow its HSN code for goods or SAC code for services, not its name alone.

Why GST matters, and what it does not do

For GK, the key points are that GST created a common national market with one rate structure across states, reduced cascading, widened the tax base through online registration and returns on the GST portal, and made the Centre and states share tax power instead of taxing separately. It did not remove all taxes: income tax and customs duty sit outside GST, and items like alcohol and petroleum remain special cases.

This article is general educational information about how GST works, not tax or financial advice for any business or purchase. Rates change by notification, so a rate quoted here should be checked against the current official schedule before it is used for invoicing.

Editorial disclosure

This article was researched and published with AI assistance. No human prepublication review is claimed. Report factual errors through our contact page.