GST in India — Complete Overview of the Goods and Services Tax Regime

What GST is

The Goods and Services Tax (GST) is a comprehensive, destination-based consumption tax levied on the supply of goods and services across India. Enacted to replace a complex web of cascading indirect taxes (such as Excise Duty, VAT, Service Tax, and Octroi), GST aims to create a unified national market. As a value-added tax, it is collected at each stage of the supply chain, with registered persons permitted to claim Input Tax Credit (ITC) for the tax paid on their procurements. The ultimate tax burden falls on the final consumer.

Constitutional structure — CGST, SGST, IGST, UTGST

Given India’s federal structure, the GST framework operates on a dual-levy system authorised by Article 246A and Article 269A of the Constitution. Every transaction is classified based on the “place of supply” rules to determine whether it is an intra-state or inter-state movement.

• Central GST (CGST): Levied by the Central Government on intra-state supplies of goods and services.
• State GST (SGST) / Union Territory GST (UTGST): Levied simultaneously with CGST by the State Government or Union Territory without legislature on intra-state supplies.
• Integrated GST (IGST): Levied exclusively by the Central Government on all inter-state supplies and imports. The IGST collected is systematically apportioned between the Union and the destination State, ensuring the tax reaches the jurisdiction where consumption occurs.

The rate structure (post 22 September 2025) — GST 2.0

Following the landmark 56th GST Council Meeting held on 3 September 2025, the Government of India overhauled the indirect tax regime, instituting the “GST 2.0” reform. Effective 22 September 2025, the previously complex 5-slab structure was rationalised into a streamlined 4-slab framework, collapsing the 12% and 28% brackets.

Under the new GST 2.0 structure, most goods previously taxed at 12% were moved to the 5% bracket, while the majority of standard goods previously at 28% were moved to the 18% slab. A new 40% slab was introduced to cover luxury goods and “sin” products. The Compensation Cess was largely merged into this 40% rate, maintaining a separate cess only for specific tobacco derivatives.

Rate slab	Category	Examples of goods + services
0%	Essential + exempt	Fresh fruits, vegetables, milk, unpacked grains, basic healthcare, educational services, individual life and health insurance, life-saving drugs
5%	Mass consumption	Packaged food items, apparel, economy class air travel, small restaurants, previously 12% goods including dairy and toiletries
18%	Standard	Most IT services, financial services, telecom, capital goods, consumer electronics (refrigerators, washing machines, ACs), standard automobiles
40%	Luxury + sin	Aerated drinks, pan masala, tobacco products, private aircraft, yachts, ultra-luxury vehicles. Base compensation cess merged here for most items

Niche / special rates:

• 0.25%: Rough industrial diamonds and specific precious stones.
• 1.5%: Cut and polished diamonds.
• 3%: Gold, silver, platinum, and fine jewellery.

Always verify the exact classification of specific HSN/SAC codes against the latest CBIC rate notifications.

For a deeper look at slab-by-slab item categorisation and rate-fitment logic, see GST rates explained.

Registration thresholds (Section 22 + Section 24)

Under Section 22 of the CGST Act, a supplier becomes liable to register in the State or Union Territory from where they make a taxable supply if their aggregate turnover in a financial year exceeds the specified threshold.

• Exclusive supply of goods: ₹40 lakhs (₹20 lakhs for special-category states).
• Supply of services (or goods + services): ₹20 lakhs (₹10 lakhs for special-category states).

“Aggregate turnover” is computed on a pan-India basis for a single PAN and includes all taxable, exempt, and export supplies.

Compulsory registration (Section 24): Certain categories require mandatory registration irrespective of turnover. This includes:

1. Persons making any inter-state taxable supply.
2. Casual taxable persons and non-resident taxable persons.
3. Persons required to pay tax under Reverse Charge Mechanism (RCM).
4. E-commerce operators and persons supplying through them.
5. Input Service Distributors (ISD).

For execution support, see the GST Registration service.

Composition scheme (Section 10)

To reduce the compliance burden on small businesses, Section 10 offers the Composition Levy. Eligible registered persons pay tax at a fixed percentage of their turnover without the benefit of claiming Input Tax Credit.

Threshold limits:

• ₹1.5 crore for general states (manufacturers and traders).
• ₹75 lakhs for specified special-category states.
• ₹50 lakhs for service providers operating under Section 10(2A).

Applicable rates:

• 1% (0.5% CGST + 0.5% SGST): manufacturers and eligible traders of goods.
• 5% (2.5% CGST + 2.5% SGST): restaurants not serving alcohol.
• 6% (3% CGST + 3% SGST): service providers and mixed suppliers under Section 10(2A).

Entities under this scheme cannot make inter-state outward supplies, cannot supply goods through an e-commerce operator, and cannot manufacture certain notified goods (e.g., ice cream, pan masala, tobacco).

GST returns — what to file when

Compliance under GST is heavily return-driven. The frequency and type of return depend on the taxpayer’s registration type and turnover. See GST Return Filing service for execution support.

Form	Purpose	Frequency	Target taxpayer
GSTR-1	Details of outward supplies	Monthly / Quarterly (QRMP)	Regular taxpayers
GSTR-3B	Summary return + tax payment	Monthly / Quarterly (QRMP)	Regular taxpayers
CMP-08	Statement for tax payment	Quarterly	Composition dealers
GSTR-4	Annual return for composition	Annually	Composition dealers
GSTR-5	Return for non-resident taxpayers	Monthly	Non-resident taxable persons
GSTR-5A	Return for OIDAR services	Monthly	OIDAR service providers
GSTR-6	Return for Input Service Distributors	Monthly	ISDs
GSTR-7	Return for TDS deductors under GST (Sec 51)	Monthly	Notified TDS deductors
GSTR-8	Return for TCS collectors (Sec 52)	Monthly	E-commerce operators
GSTR-9	Annual return	Annually	Regular taxpayers > ₹2 cr
GSTR-9C	Reconciliation statement	Annually	Regular taxpayers > ₹5 cr

Input Tax Credit (ITC) — the eligibility framework

Input Tax Credit (ITC) forms the backbone of the GST regime, eliminating the cascading effect of taxes. Section 16 of the CGST Act strictly governs its availability.

Eligibility conditions (Section 16): To claim ITC, a registered person must satisfy all the following criteria:

1. Possession of a tax invoice or debit note issued by a registered supplier.
2. Actual receipt of the goods or services.
3. The supplier has paid the tax charged in respect of such supply to the Government (cash or utilisation of ITC).
4. The recipient has furnished a valid GSTR-3B return.
5. Details of the invoice are reflected in the recipient’s GSTR-2B (auto-drafted ITC statement).

Time limit for claiming ITC [Section 16(4)]: ITC for a specific financial year must be claimed by 30 November of the subsequent financial year, or the date of furnishing the relevant Annual Return, whichever is earlier.

Blocked credits [Section 17(5)]: Even where the Section 16 conditions are met, ITC is explicitly blocked for certain inputs, including:

• Motor vehicles for transportation of persons (seating capacity ≤ 13) unless used for further supply, driving schools, or passenger transport.
• Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery (unless part of a composite or mixed supply).
• Membership of a club, health, and fitness centre.
• Goods lost, stolen, destroyed, written off, or distributed as gifts or free samples.
• Works contract services supplied for construction of immovable property (other than plant and machinery) on own account.

For a full Section 16 + 17(5) walkthrough, see GST ITC rules.

E-invoicing — applicability + mechanics

E-invoicing requires B2B invoices and export invoices to be electronically authenticated by GSTN via the Invoice Registration Portal (IRP). On successful validation, the IRP generates a unique Invoice Reference Number (IRN) and a digitally signed QR code.

Applicability: E-invoicing is mandatory for any registered person whose aggregate pan-India turnover in any preceding financial year from 2017-18 onwards crossed the prescribed limit (currently ₹5 crore). Exemptions exist for specific sectors like banking, insurance, GTA, and multiplex cinemas. Verify current threshold via the latest CBIC notification.

E-way bill — when required

An Electronic Way Bill (e-way bill) is a compliance mechanism requiring the person in charge of a conveyance carrying goods to carry a digital document generated on the e-way bill portal.

Thresholds:

• Inter-state movement: mandatory if the consignment value exceeds ₹50,000.
• Intra-state movement: state-specific rules apply. While the default is ₹50,000, several states have notified a higher limit of ₹1 lakh for intra-state transit.

The e-way bill is tied to the physical movement of goods, irrespective of whether the movement is caused by a supply, a reason other than supply (e.g., job work), or an inward supply from an unregistered person.

Reverse Charge Mechanism (Section 9(3) + 9(4))

Under standard GST protocols, the supplier collects tax from the recipient and remits it to the Government. The Reverse Charge Mechanism (RCM) flips this liability: the recipient of the goods or services becomes directly liable to pay the tax to the Government.

• Section 9(3) — notified supplies: the Government has notified specific goods (cashew nuts, bidi wrappers, raw cotton) and services (Goods Transport Agency (GTA) services, legal services by advocates, sponsorship services, directorial services to a company) where RCM strictly applies.
• Section 9(4) — unregistered to registered: RCM applies when a registered person procures specific notified goods or services from an unregistered supplier. Currently, this heavily targets the real estate sector (e.g., promoters procuring shortfall of materials from unregistered persons).

Taxes paid under RCM must be paid in cash (ITC cannot be used to discharge RCM liability) but the recipient can claim the same amount as ITC in the same month, subject to the Section 16 conditions.

GSTR-9 + 9C — annual return + reconciliation

The financial year-end compliance under GST requires a comprehensive summation of all transactional data.

• GSTR-9 (Annual Return): mandatory for regular taxpayers whose aggregate turnover exceeds ₹2 crore. It consolidates all monthly/quarterly returns (GSTR-1 and GSTR-3B), capturing adjustments, amendments, and lapsed ITC. See GSTR-9 Annual Return service for execution support.
• GSTR-9C (Reconciliation Statement): a self-certified reconciliation statement between the audited financial statements and the figures declared in GSTR-9. Mandatory only for taxpayers whose aggregate turnover exceeds ₹5 crore. See GST Reconciliation service.

Penalty + interest table

Non-compliance, late payment, or erroneous utilisation of credit attracts statutory interest under Section 50 and penalties under Section 122 of the CGST Act.

Nature of default	Interest rate / penalty quantum	Relevant section
Late payment of tax	18% p.a. (calculated on net cash liability if return filed after due date)	Section 50(1)
Excess ITC claimed AND utilised	24% p.a.	Section 50(3)
Late filing of GSTR-3B / GSTR-1	Late fee of ₹50 per day (₹20 for nil return), capped dynamically based on turnover	Section 47
Supplying goods without invoice / tax evasion	Penalty equal to 100% of tax evaded or ₹10,000, whichever is higher	Section 122(1)
Fraudulent ITC claim	Penalty equal to 100% of tax evaded or ₹10,000, whichever is higher, plus potential prosecution	Section 122(1)