Goods and Services Tax (GST) has been India's unified indirect tax since July 2017, replacing over a dozen central and state taxes. Whether you're a business owner raising invoices, a consumer trying to understand your bill, or a professional filing GST returns, understanding how GST works — and how to calculate it accurately — is essential. This guide covers everything in plain language.
GST Rate Slabs in India
| GST Rate | What It Covers |
|---|---|
| 0% (Exempt) | Essential items — fresh vegetables, milk, bread, books, education services |
| 5% | Household staples — packaged food, medicines, economy class air travel |
| 12% | Processed foods, business class air travel, mobile phones (under ₹12k), construction services |
| 18% | Most services — restaurants, IT services, financial services, electronics (over ₹12k) |
| 28% | Luxury goods — cars, tobacco, aerated drinks, high-end consumer durables |
How to Calculate GST
Total Price (inclusive) = Original Price + GST Amount
To extract GST from a GST-inclusive price: Original Price = GST-Inclusive Price ÷ (1 + GST Rate/100)
Example 1 — Adding GST: A service costs ₹10,000 (excluding GST) at 18% GST.
- GST Amount = ₹10,000 × 18/100 = ₹1,800
- Total Invoice = ₹10,000 + ₹1,800 = ₹11,800
Example 2 — Removing GST from an inclusive price: A product is sold at ₹11,800 (GST-inclusive at 18%)
- Original Price = ₹11,800 ÷ 1.18 = ₹10,000
- GST component = ₹11,800 – ₹10,000 = ₹1,800
CGST, SGST, and IGST: Which Applies?
GST is split into components based on transaction type:
| Transaction Type | Applicable Tax | Split |
|---|---|---|
| Within same state (intrastate) | CGST + SGST | Half to Centre, half to State |
| Between states (interstate) | IGST | Collected by Centre, shared with destination state |
| Import of goods/services | IGST + Customs Duty | IGST at applicable rate |
Input Tax Credit (ITC): The Key Business Benefit
Registered businesses can claim credit for GST paid on inputs (purchases) against GST collected on outputs (sales). This prevents the cascading "tax on tax" problem of the old regime.
Example: A manufacturer pays ₹18,000 GST on raw materials and collects ₹36,000 GST on finished goods sold. Net GST payable = ₹36,000 – ₹18,000 = ₹18,000. Without ITC, they would pay ₹36,000.
Frequently Asked Questions
Which businesses must register for GST?
Businesses with annual turnover above ₹40 lakhs (goods) or ₹20 lakhs (services) must register. For North-Eastern and hilly states, the threshold is ₹10 lakhs. Some businesses like e-commerce sellers must register regardless of turnover.
What is the Composition Scheme?
Small businesses with turnover below ₹1.5 crore can opt for the Composition Scheme, paying a flat 1–5% tax on turnover instead of regular GST rates. The trade-off: they cannot collect GST from customers or claim ITC.
How often are GST returns filed?
Regular taxpayers file GSTR-1 (outward supplies) monthly or quarterly, and GSTR-3B (summary return with payment) monthly. Composition scheme taxpayers file quarterly (CMP-08). Annual returns are filed once a year.