Understanding GST in India
Goods and Services Tax (GST) is a comprehensive indirect tax
implemented in India on July 1, 2017. It replaced multiple
cascading taxes with a single, destination-based tax on the supply
of goods and services.
How to Calculate GST
To calculate GST: multiply the base amount by the GST rate
percentage. For example, on ā¹1,000 at 18% GST rate, the tax is
ā¹180, making the total ā¹1,180.
Current GST Rate Structure
-
0% - Essential items: fresh fruits, vegetables, milk, bread,
salt, jaggery
-
5% - Basic necessities: packaged foods, tea, coffee, edible
oils, coal
-
12% - Standard items: mobile phones, processed foods, ayurvedic
medicines
-
18% - Most services and goods: restaurants, IT services,
telecom, financial services
-
28% - Luxury items: automobiles, tobacco products, aerated
drinks, high-end electronics
-
40% - Super luxury items: premium automobiles, high-end goods (introduced GST Reform 2.0, September 2025)
Frequently Asked Questions
What is the difference between CGST, SGST, and IGST?
For intrastate sales (within same state), GST is split equally
between CGST (Central GST) and SGST (State GST). For interstate
sales, only IGST (Integrated GST) applies at the full rate.
How is GST calculated on discounted products?
GST applies to the actual transaction value (after discount),
not the MRP, unless the discount is given as post-supply
incentive.
What is Input Tax Credit (ITC)?
ITC allows businesses to claim credit for GST paid on purchases,
reducing their overall tax liability. This eliminates tax
cascading.
Is reverse charge applicable on all services?
No, reverse charge applies only to specific notified services
and goods, where the recipient pays GST instead of the supplier.
What's the difference between composition scheme and regular
scheme?
Composition scheme offers lower tax rates (1-6%) but no ITC
claims, while regular scheme has standard rates with ITC
benefits.
Can I use this calculator for GST filing?
This calculator helps with GST calculations, but for official
GST filing, use the government's GST portal and consult with a
qualified CA.
What is the GST composition scheme?
The composition scheme is a simplified GST payment option for small businesses with annual turnover up to ā¹1.5 crore (ā¹75 lakh for special category states). Under this scheme, businesses pay a lower flat rate: 1% for traders and manufacturers, 2% for manufacturers of specified goods, and 6% for restaurants. However, composition taxpayers cannot claim Input Tax Credit (ITC), cannot make interstate supplies, and must file returns quarterly instead of monthly. This scheme is ideal for small retailers with low-profit margins who want simpler compliance.
How does GST work for freelancers and independent contractors?
Freelancers and independent contractors providing services in India must register for GST if their annual turnover exceeds ā¹20 lakh (ā¹10 lakh for special category states). Most professional services attract 18% GST. Freelancers must issue GST-compliant invoices, collect tax from clients, file monthly GSTR-1 and GSTR-3B returns, and pay the collected tax to the government. They can claim Input Tax Credit on business expenses like software subscriptions, internet bills, and office equipment. Export of services to foreign clients is zero-rated (no GST charged) if proper documentation is maintained.
What is reverse charge mechanism in GST?
Reverse charge mechanism (RCM) is a provision where the receiver of goods or services pays GST instead of the supplier. This applies in specific notified cases such as: services from unregistered suppliers to registered businesses, purchase from composition taxpayers, legal services from advocates, goods transport agency services for unregistered transporters, and import of services from abroad. Under RCM, the recipient must self-assess the tax, pay it to the government, and can claim ITC if eligible. This mechanism prevents tax evasion in sectors where suppliers might not be GST-compliant.
When is an e-way bill required for goods transportation?
E-way bill is an electronic permit required for transporting goods worth more than ā¹50,000 within or across state borders. It must be generated on the GST portal before goods movement begins. The bill contains details about goods, supplier, recipient, transporter, and vehicle. Validity depends on distance: 1 day for every 200 km for regular goods, or 1 day per 20 km for over-dimensional cargo. Both interstate and intrastate movements require e-way bills. Exemptions include certain categories like fresh produce, live animals, passenger baggage, and goods for exhibition. Non-compliance can result in goods seizure and penalties up to 200% of tax value.
How to claim Input Tax Credit (ITC) properly?
To claim Input Tax Credit, businesses must: (1) possess a valid tax invoice from a GST-registered supplier, (2) receive the goods or services, (3) ensure supplier has filed their GSTR-1, (4) file their own returns on time, and (5) pay suppliers within 180 days (for MSME vendors). ITC can be claimed for business purchases but NOT for: motor vehicles for personal use, food/beverages, health services, membership fees, personal expenses, or exempt supplies. Reconcile your purchases with GSTR-2B auto-populated from supplier returns. Claim ITC by reporting purchases in GSTR-3B. Unclaimed ITC can be carried forward but must be claimed before filing annual returns in September of the following year.
GST for Different Sectors
Services
Professional services, consultancy - 18%
Real Estate
Under-construction properties - 5% (affordable) / 12% (others)
Textiles
ā¹1000+ garments - 12%, below ā¹1000 - 5%
Restaurants
5% (non-AC), 18% (AC/licensed)
GST vs Previous Tax System
| Aspect |
GST |
Previous System |
| Number of Taxes |
One unified tax |
17+ different taxes |
| Tax Cascading |
Eliminated |
Present |
GST Calculation Examples - Real World Scenarios
Example 1: Restaurant Bill GST Calculation
When dining at an air-conditioned restaurant in India, GST is
charged at 18%. For a bill of ā¹2,000, the GST breakdown would be:
CGST ā¹180 (9%) + SGST ā¹180 (9%) = Total GST ā¹360. Your final bill
becomes ā¹2,360. Non-AC restaurants charge only 5% GST, making a
ā¹2,000 bill total ā¹2,100. After calculating GST, you can also
calculate tips for restaurant bills
to determine the appropriate gratuity amount.
Example 2: Electronics Purchase (Mobile Phone)
Mobile phones attract 12% GST in India. If you purchase a
smartphone for ā¹30,000 (exclusive of GST), the tax calculation is:
CGST ā¹1,800 (6%) + SGST ā¹1,800 (6%) = Total GST ā¹3,600. The final
price you pay is ā¹33,600. For interstate purchases, IGST of ā¹3,600
(12%) applies instead.
Example 3: Professional Services Invoice
Consultancy and professional services are taxed at 18% GST. For a
consulting fee of ā¹50,000, the GST would be ā¹9,000 (CGST ā¹4,500 +
SGST ā¹4,500 for intrastate). The client pays ā¹59,000 total.
Service providers must issue tax invoices with proper GST details
for ITC claims.
Example 4: B2B Transaction with Input Tax Credit
A manufacturer sells goods worth ā¹1,00,000 to a dealer at 18% GST
(ā¹18,000). The dealer can claim this ā¹18,000 as Input Tax Credit
(ITC) when filing returns. When the dealer sells to customers at
ā¹1,50,000 plus 18% GST (ā¹27,000), they only pay ā¹9,000 to the
government (ā¹27,000 collected minus ā¹18,000 ITC).
Example 5: Import with Custom Duty and GST
For imported goods, GST is calculated on the sum of assessable
value and custom duty. If goods worth ā¹10,000 have 10% custom duty
(ā¹1,000), the GST base becomes ā¹11,000. At 18% IGST, the tax is
ā¹1,980. Total landing cost: ā¹10,000 + ā¹1,000 + ā¹1,980 = ā¹12,980.
State-wise GST Collection and Implementation
GST collection varies significantly across Indian states based on
economic activity and industrial presence. Understanding
state-specific nuances helps businesses plan better.
| State |
Monthly GST Collection (ā¹ Crore) |
Key Industries |
Special Considerations |
| Maharashtra |
25,000+ |
Manufacturing, Services |
Highest GST contributor |
| Karnataka |
10,000+ |
IT, Software Services |
Tech hub with 18% service GST (includes
digital gaming currencies)
|
| Gujarat |
9,000+ |
Textiles, Chemicals |
Major manufacturing base |
| Tamil Nadu |
9,500+ |
Automobiles, Textiles |
Strong industrial presence |
| Uttar Pradesh |
7,500+ |
Agriculture, MSMEs |
Largest consumer base |
| West Bengal |
5,000+ |
Jute, Tea, Coal |
Mixed tax structure |
| Delhi |
6,000+ |
Services, Trade |
No SGST, only CGST + UTGST |
| Haryana |
6,500+ |
Automobiles, Agriculture |
NCR advantage |
| Telangana |
5,500+ |
IT, Pharma |
Hyderabad tech corridor |
| Rajasthan |
4,000+ |
Tourism, Minerals |
Seasonal variations |
States with special status like Jammu & Kashmir, Himachal Pradesh,
and North Eastern states have different GST thresholds. The
registration limit for these states is ā¹10 lakh for goods and ā¹20
lakh for services, compared to ā¹40 lakh and ā¹20 lakh respectively
for other states.
GST Guide for Small Businesses and Startups
GST Registration Thresholds
Small businesses must register for GST when their annual turnover
exceeds ā¹40 lakh for goods suppliers (ā¹20 lakh in special category
states) or ā¹20 lakh for service providers (ā¹10 lakh in special
states). However, businesses making interstate supplies,
e-commerce operators (including
digital gaming currency sellers), and those liable for reverse charge must register regardless
of turnover.
Composition Scheme Benefits
The composition scheme offers simplified compliance for small
businesses with turnover up to ā¹1.5 crore (ā¹75 lakh for special
states). Tax rates are lower: 1% for traders, 2% for manufacturers
(of items not in Schedule II), and 6% for restaurants (see our
restaurant tip calculator for
additional dining calculations). However, businesses cannot claim
ITC or make interstate supplies under this scheme. Quarterly
returns (GSTR-4) instead of monthly filings reduce compliance
burden significantly.
Quarterly Return Filing (QRMP Scheme)
Small taxpayers with turnover up to ā¹5 crore can opt for the
Quarterly Return Monthly Payment (QRMP) scheme. They file GSTR-1
and GSTR-3B quarterly but pay taxes monthly through PMT-06. This
reduces filing frequency from 24 returns annually to just 8,
saving considerable time and effort for small businesses.
Input Tax Credit for Small Businesses
Small businesses under regular scheme can claim ITC on purchases
used for business. Common ITC claims include: raw materials,
office supplies, professional services, and rent (if landlord is
GST registered). Maintain proper invoices with GSTIN, description,
HSN/SAC codes, and tax details. ITC cannot be claimed on: personal
expenses, goods used for exempt supplies, or composition scheme
purchases.
Common Compliance Requirements
Every GST-registered small business must: issue proper tax
invoices with mandatory details, maintain books of accounts for 6
years, file returns on time to avoid late fees (ā¹50/day),
reconcile purchases with supplier's GSTR-1, and conduct annual
reconciliation in GSTR-9. E-invoicing is mandatory for businesses
with ā¹5 crore+ turnover.
Common GST Mistakes to Avoid - Compliance Guide
1. Incorrect HSN/SAC Code Usage
Using wrong Harmonized System of Nomenclature (HSN) codes for
goods or Service Accounting Codes (SAC) for services leads to
incorrect tax rates. For instance, classifying "milk products"
(5%) as "beverages" (12-28%) causes tax disputes. Always verify
codes on the GST portal. Businesses with turnover above ā¹5 crore
must mention 6-digit HSN codes, while smaller businesses can use
4-digit codes.
2. Missing or Incorrect Invoice Details
GST invoices must contain: supplier and recipient GSTIN,
consecutive invoice number, date, HSN/SAC codes, taxable value,
tax rates and amounts (CGST/SGST/IGST), place of supply, and
signature. Missing any mandatory field can lead to ITC rejection
for buyers. E-invoicing errors like duplicate IRNs or late
generation (beyond 30 days) attract penalties.
3. ITC Claim Errors and Reversals
Common ITC mistakes include: claiming credit on blocked items
(motor vehicles for personal use, membership fees, health
insurance), not reversing ITC on exempt supplies, claiming ITC
without possession of valid invoice, and missing the 180-day
payment rule for MSME suppliers. Rule 37 mandates ITC reversal if
supplier payment isn't made within 180 days.
4. Late Filing and Payment Penalties
Late filing attracts fees: GSTR-1 (ā¹50/day), GSTR-3B (ā¹50/day -
ā¹25 each for CGST/SGST), maximum ā¹5,000 for nil returns. Interest
at 18% per annum applies on late tax payment. Continuous
non-compliance can lead to GST registration cancellation. File nil
returns even when there's no business activity to avoid penalties.
5. Place of Supply Confusion
Incorrectly determining place of supply affects CGST/SGST vs IGST
application. For services, if supplier location and supply
location differ (interstate), charge IGST. For goods, location of
goods at delivery time determines tax type. SEZ supplies are
zero-rated but require proper documentation. Export services need
Letter of Undertaking (LUT) for zero-rated supplies.
GST Compliance Calendar 2025 - Important Dates
Monthly Compliance Deadlines
Regular taxpayers must file GSTR-1 (outward supplies) by the 11th
of the following month. GSTR-3B (summary return with tax payment)
is due by the 20th. Large taxpayers with ā¹5 crore+ turnover must
generate e-invoices in real-time and file GSTR-1 using Invoice
Furnishing Facility (IFF) between 1st-13th of the month.
Quarterly Filing Dates (QRMP Scheme)
Small taxpayers under QRMP scheme file GSTR-1 quarterly: Q1
(Apr-Jun) by July 31st, Q2 (Jul-Sep) by October 31st, Q3 (Oct-Dec)
by January 31st, Q4 (Jan-Mar) by April 30th. GSTR-3B follows the
same schedule. Monthly tax payment through PMT-06 is due by the
25th of the following month.
Annual Return Deadlines
GSTR-9 (annual return) for FY 2024-25 will be due by December 31,
2025. GSTR-9C (audit form) for businesses exceeding ā¹5 crore
turnover is also due by December 31st. Any discrepancies
identified must be disclosed and additional tax paid with
interest. Late filing attracts 0.25% of turnover penalty, maximum
ā¹5 lakh.
| Return Type |
Frequency |
Due Date |
Late Fee |
| GSTR-1 |
Monthly |
11th of next month |
ā¹50/day |
| GSTR-3B |
Monthly |
20th of next month |
ā¹50/day |
| GSTR-4 |
Quarterly |
30th of month following quarter |
ā¹50/day |
| GSTR-9 |
Annual |
December 31st |
0.25% of turnover |
| GSTR-9C |
Annual |
December 31st |
0.25% of turnover |
Other Important Compliance Dates
TDS returns (GSTR-7) are due by the 10th of the following month.
TCS returns (GSTR-8) follow the same timeline. Input Service
Distributor returns (GSTR-6) must be filed by the 13th. E-way
bills for goods movement above ā¹50,000 must be generated before
transportation. Validity depends on distance: 1 day for every
200km (regular) or 20km (over-dimensional cargo).