What Is GST (Goods and Services Tax)?

Direct vs indirect tax

Income tax is a direct tax — you pay it on what you earn. GST is an indirect tax — it is collected by the seller on what you buy and passed to the government. As a consumer you do not file GST; you simply see it on invoices.

One tax, two halves

For a sale within a state, the GST charged is split equally into CGST (to the Central Government) and SGST (to the State Government). For a sale from one state to another, a single IGST is charged and later apportioned. This is why a bill often shows two lines that add up to the total GST rate.

How input tax credit works

At each stage of a supply chain, a business charges GST on its sales and pays GST on its purchases. It remits only the difference, claiming credit for the tax already paid on inputs. The effect is that tax is not charged on tax, and the full burden lands on the final consumer.

Reading GST on a bill

• Exclusive pricing shows the base price, then adds GST: Total = Base × (1 + rate).
• Inclusive pricing quotes one number with GST inside it: Base = Total ÷ (1 + rate).

A GST calculator simply applies these two formulas in either direction once you know the applicable rate.

Which rate applies?

Goods and services are classified into rate slabs by the GST Council, and classifications change. Rather than memorising slabs, check the GST portal or CBIC for the current rate on a specific item, and look at the HSN/SAC code on your invoice.

Where GST touches personal finance

Loan processing fees, insurance premiums, brokerage and many financial services attract GST, which raises the all-in cost of these products. When comparing a loan or policy, check whether quoted charges are inclusive of GST.