Goods and Services Tax (GST) is a comprehensive, indirect tax levied on the supply of goods and services.
It is a single tax that has replaced multiple indirect taxes like VAT, excise duty, service tax, entry tax, and octroi.
GST is collected at each stage of the supply chain (from manufacturer to wholesaler to retailer to consumer), but the burden falls only on the final consumer.
It follows the principle of “One Nation, One Tax, One Market.”
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Concept of GST
1. Destination-based Tax
GST is levied at the place of consumption (destination) and not at the place of origin (production).
Example: If goods are manufactured in Gujarat and sold in Maharashtra, GST revenue goes to Maharashtra.
2. Value Addition Principle
GST is levied on the value added at each stage of the supply chain.
Input Tax Credit (ITC) allows businesses to claim a credit for the tax they paid on inputs, ensuring no "tax on tax."
Example:
Manufacturer buys raw material for ₹1,000 + GST ₹180 (18%).
Sells finished goods to wholesaler for ₹2,000 + GST ₹360.
Manufacturer already paid ₹180 as GST on input, so he can claim ITC of ₹180 and pay only ₹180 net to the government.
3. Dual Structure in India
India follows a dual GST system where both the Central Government and State Governments levy tax simultaneously:
CGST (Central GST): Central share.
SGST (State GST): State share (for intra-state supply).
IGST (Integrated GST): For inter-state supply, collected by Centre and then shared.
4. GST Rates
Multiple slabs: 0%, 5%, 12%, 18%, 28% depending on the type of goods/services.
Essential items: lower or zero rate.
Luxury/sin goods: higher rate.
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Key Features of GST
Comprehensive: Covers almost all goods and services (except alcohol, petroleum products, and electricity in India).
Uniformity: Eliminates the cascading effect of multiple taxes.
Transparency: Tax clearly shown on invoices.
Digital Compliance: Filing returns, claiming ITC, and payments done through GSTN (Goods and Services Tax Network).
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Example of GST in Action
Suppose Mr. Arjun buys a washing machine in Delhi (intra-state sale).
Base Price = ₹20,000
GST Rate = 18% (9% CGST + 9% SGST)
Tax = ₹3,600 (CGST ₹1,800 + SGST ₹1,800)
Final Price Paid by Arjun = ₹23,600
If the same washing machine is sent from Delhi to Mumbai (inter-state):
IGST @ 18% = ₹3,600
Final Price = ₹23,600
IGST goes to the Centre, which then distributes the share to Maharashtra.
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✅ In short: GST is a unified tax on goods and services, collected at every stage of value addition, but effectively borne only by the final consumer.
