GST Made Simple
A Complete Beginner-to-Advanced Guide to Goods & Services Tax (India)
Every concept explained in plain language with real examples
1. What is GST?
2. Why GST Was Introduced
3. Types of GST — CGST, SGST, IGST, UTGST
4. GST Tax Slabs / Rates
5. HSN & SAC Codes
6. GST Registration
7. Input Tax Credit (ITC)
8. GST Invoice
9. Reverse Charge Mechanism (RCM)
10. Composition Scheme
11. GST Returns (GSTR-1, 3B, etc.)
12. E-Way Bill
13. GST Payment & Due Dates
14. Penalties & Late Fees
15. Quick Recap Table
1. What is GST?
GST (Goods and Services Tax) is one single indirect tax charged on the sale of goods and services in
India. It replaced many older taxes (VAT, Service Tax, Excise Duty, etc.) with one unified tax, applied at
every stage of the supply chain — but the final burden falls on the end consumer.
Think of it as a tax that is collected in pieces at every step (manufacturer → wholesaler → retailer →
customer), but businesses get credit for tax already paid, so it doesn't pile up unfairly.
Example 1:
A shirt manufacturer sells a shirt to a wholesaler for ■500 + GST. The wholesaler sells it to a retailer for
■700 + GST. The retailer sells it to you for ■1,000 + GST. GST is charged at each stage, but each
business only pays tax on the value they added, not the full price again.
Example 2:
When you eat at a restaurant and see "CGST 2.5% + SGST 2.5%" on your bill, that's GST in action —
one combined tax replacing what used to be separate state and central taxes.
2. Why GST Was Introduced
Before GST (pre-2017), India had many separate taxes — VAT, Service Tax, Excise Duty, Entry Tax,
Octroi — each with different rules per state. This caused the 'tax on tax' problem, called cascading
effect.
• One Nation, One Tax — same tax structure across all of India.
• Removes cascading (tax-on-tax) effect.
• Makes inter-state trade simpler.
• Increases transparency using digital filing.
Example 1 (Before GST):
A biscuit maker pays Excise Duty on manufacturing, then the wholesaler pays VAT on top of a price
that already includes Excise Duty — so tax is charged on tax already paid.
Example 2 (After GST):
The same biscuit maker charges GST only once at each stage, and everyone down the chain gets
credit for GST already paid — no tax-on-tax.
3. Types of GST — CGST, SGST, IGST, UTGST
GST is split into different components depending on where the sale happens:
Type Full Form Applies When Goes To
CGST Central GST Sale within same state Central Govt.
SGST State GST Sale within same state State Govt.
Central Govt.
IGST Integrated GST Sale between two states
(then shared)
UTGST Union Territory GST Sale within a Union Territory UT Govt.
Example 1 (Intra-state sale):
A shop in Mumbai sells goods to a customer in Mumbai for ■1,000 at 18% GST. This splits as CGST
9% (■90) + SGST 9% (■90) = ■180 total tax.
Example 2 (Inter-state sale):
A shop in Mumbai (Maharashtra) sells goods to a customer in Delhi for ■1,000 at 18% GST. Since it
crosses state lines, the full 18% is charged as IGST = ■180, no CGST/SGST split.
4. GST Tax Slabs / Rates
GST rates are not one-size-fits-all — different goods/services fall into different rate slabs (as of the last
major GST rate rationalisation):
• 0% — Essential items (fresh milk, fresh vegetables, education, healthcare)
• 5% — Common-use items (packaged food, footwear under ■1,000, transport services)
• 12% — Standard processed goods (butter, mobile phones, business-class air tickets)
• 18% — Most goods and services (electronics, IT services, restaurants without AC in some cases)
• 28% — Luxury/sin goods (cars, tobacco, aerated drinks) — often with extra Cess
Example 1:
Fresh vegetables bought from a local vendor attract 0% GST — no tax at all, since it's a basic food
item.
Example 2:
A luxury car worth ■20,00,000 attracts 28% GST plus additional compensation Cess, making the
effective tax rate much higher than everyday items.
Note: GST rates change periodically via GST Council meetings — always check the latest rate for a specific
item before filing or invoicing.
5. HSN & SAC Codes
HSN (Harmonized System of Nomenclature) codes classify goods, while SAC (Services
Accounting Code) classifies services. Every invoice needs the correct code so the right GST rate is
applied and returns match up.
Example 1 (HSN — Goods):
HSN code 1905 covers bread, pastry, cakes and biscuits. A bakery must mention this code on its GST
invoice for baked goods.
Example 2 (SAC — Services):
SAC code 9983 covers legal and accounting services. A chartered accountant firm uses this code
when billing clients with GST.
6. GST Registration
Any business must register for GST once it crosses a set turnover limit, or if it falls into certain special
categories (like inter-state sellers or e-commerce sellers), regardless of turnover.
• Goods sellers: registration generally required above ■40 lakh turnover (■20 lakh in some special
category states)
• Service providers: generally required above ■20 lakh turnover (■10 lakh in some special category
states)
• Compulsory registration regardless of turnover: inter-state suppliers, e-commerce sellers, casual
taxable persons
Example 1:
A local tailor with ■15 lakh annual turnover, selling only within his state, is not required to register for
GST.
Example 2:
A small handicraft seller with just ■5 lakh turnover who sells through an online marketplace (like
Amazon) to other states MUST register for GST, because inter-state/e-commerce sellers don't get the
turnover exemption.
7. Input Tax Credit (ITC)
ITC is the heart of GST. It means a business can subtract the GST it already paid on purchases (inputs)
from the GST it needs to pay on sales (output). This is what avoids the tax-on-tax problem.
Formula: Net GST Payable = Output GST (on sales) − Input GST (on purchases)
Example 1:
A furniture maker buys wood and pays ■1,000 GST on the purchase. He sells the finished furniture and
collects ■3,000 GST from customers. He only needs to pay ■3,000 − ■1,000 = ■2,000 to the
government; the ■1,000 he already paid is his Input Tax Credit.
Example 2:
A software company pays ■500 GST on office rent and ■300 GST on a laptop purchase (total ■800
input GST). It collects ■5,000 GST on services billed to a client. Net GST payable = ■5,000 − ■800 =
■4,200.
Note: ITC can only be claimed if the supplier has actually filed and paid their GST — this is why matching
invoices (via GSTR-2B) matters.
8. GST Invoice
A GST invoice is a bill that must show specific details for the transaction to be valid under GST law.
• Supplier's name, address, and GSTIN (GST registration number)
• Invoice number and date
• Customer's details and GSTIN (if registered)
• HSN/SAC code, description, quantity, and value of goods/services
• GST rate and amount (CGST+SGST or IGST) shown separately
• Total invoice value
Example 1:
A stationery shop sells notebooks worth ■1,000 to a walk-in customer within the same state. The
invoice shows: Value ■1,000, CGST 6% (■60), SGST 6% (■60), Total ■1,120.
Example 2:
An IT firm in Bangalore bills a client in Chennai ■50,000 for consulting. Since it's inter-state, the invoice
shows: Value ■50,000, IGST 18% (■9,000), Total ■59,000.
9. Reverse Charge Mechanism (RCM)
Normally, the seller collects GST and pays it to the government. Under Reverse Charge, this flips —
the buyer is responsible for paying GST directly to the government instead of the seller.
Example 1:
A registered business hires a Goods Transport Agency (GTA) that hasn't charged GST on the freight
bill. Under RCM, the business receiving the transport service must pay the GST directly, not the
transporter.
Example 2:
A company buys services from an unregistered lawyer/advocate for legal advice. Since the advocate
doesn't charge GST, the company itself must calculate and pay GST under reverse charge.
10. Composition Scheme
This is a simplified option for small taxpayers (turnover generally up to ■1.5 crore for goods) to pay GST
at a small fixed rate on total turnover, instead of calculating detailed ITC on every transaction. In
exchange, they cannot claim ITC and cannot charge GST separately to customers.
Example 1:
A small restaurant with ■80 lakh annual turnover opts for the Composition Scheme and pays a flat 5%
on total turnover, instead of tracking ITC on every ingredient purchased.
Example 2:
A small trader with ■60 lakh turnover under the Composition Scheme pays a flat 1% GST on sales,
and simply mentions "Composition taxable person, not eligible to collect tax on supplies" on the bill
instead of a detailed GST invoice.
Note: Composition dealers file quarterly returns (CMP-08) instead of detailed monthly returns — much
simpler for very small businesses.
11. GST Returns (GSTR-1, 3B, etc.)
A GST return is a form where a registered business reports its sales, purchases, and tax details to the
government.
Return Purpose Frequency
GSTR-1 Details of outward supplies (sales) Monthly/Quarterly
GSTR-3B Summary return + tax payment Monthly
GSTR-9 Annual return (yearly summary) Yearly
CMP-08 For Composition Scheme dealers Quarterly
Example 1:
A retailer files GSTR-1 by the 11th of next month listing every sales invoice from the previous month.
Example 2:
The same retailer then files GSTR-3B by the 20th, summarizing total sales, total ITC claimed, and pays
the net GST due.
12. E-Way Bill
An E-Way Bill is an electronic document required for transporting goods worth more than ■50,000, to
track movement of goods and prevent tax evasion.
Example 1:
A furniture company ships goods worth ■80,000 from Pune to Nagpur. Since the value exceeds
■50,000, an E-Way Bill must be generated before the truck starts moving.
Example 2:
A local shop sends goods worth ■30,000 within the same city to a customer. Since this is below the
■50,000 threshold, no E-Way Bill is required (state rules may vary slightly for intra-city movement).
13. GST Payment & Due Dates
GST is typically paid monthly (or quarterly for small taxpayers under QRMP scheme) through the GST
portal, using the Electronic Cash Ledger and Electronic Credit Ledger.
Example 1:
A business calculates ■50,000 GST payable for the month. It has ■30,000 available as ITC, so it pays
only ■20,000 in cash through the portal by the 20th of the next month.
Example 2:
A small business under the QRMP (Quarterly Return Monthly Payment) scheme pays estimated tax
monthly but files the detailed return only once a quarter.
14. Penalties & Late Fees
Missing GST deadlines or making errors leads to interest and late fees.
• Late filing fee: ■50/day (■20/day for nil returns), split between CGST and SGST
• Interest on late tax payment: 18% per annum on the outstanding amount
• Penalty for not registering when required, or for fraud: can go up to 100% of tax due
Example 1:
A business delays filing GSTR-3B by 10 days. It pays a late fee of ■50 × 10 = ■500, plus 18% annual
interest on the unpaid tax for those 10 days.
Example 2:
A dealer deliberately under-reports sales to evade tax. On detection, this counts as fraud, attracting a
penalty of up to 100% of the tax evaded, in addition to the tax and interest owed.
15. Quick Recap Table
Concept One-Line Meaning
GST Single tax on goods & services, replacing multiple older taxes
CGST/SGST Split tax for sales within the same state
IGST Single tax for sales between two states
ITC Credit for GST already paid on purchases
RCM Buyer pays GST instead of seller
Composition Scheme Flat low rate for small businesses, no ITC
GSTR-1 / 3B Monthly return forms for sales & tax summary
E-Way Bill Required for transporting goods over ■50,000
Note: GST rates, thresholds and rules are revised periodically by the GST Council. This guide reflects the
general framework — always verify current figures on the official GST portal ([Link]) before filing.