GST – the Goods and Services Tax – is on almost every bill you see in India, from a mobile recharge to a restaurant meal. Yet many people, and even many small business owners, are not sure what CGST and SGST mean, why some bills show IGST instead, or when a business has to register. This guide explains GST in plain language, with simple worked examples. It is general information, not tax advice – for your own filings, check the official GST portal or speak to a tax professional.
Need a quick number? Add or remove GST from any price, with the CGST/SGST split.
Open the GST calculator →What GST replaced
GST came into force on 1 July 2017. It replaced a long list of older taxes – central excise, service tax, state VAT, entry tax and several others – with one system that works across the country. GST is a tax on consumption: it is added at each stage of sale, but businesses get credit for the tax they already paid on their purchases, so in the end the tax is effectively paid by the final customer.
Current GST rates
From 22 September 2025, the GST Council simplified the rate structure. Most goods and services now fall into two main slabs:
- 5% – many everyday items and essentials that are not exempt.
- 18% – the standard rate for most goods and services.
- 40% – a special rate for a short list of luxury and "sin" goods.
Some items stay at special rates – for example 3% on gold and silver – and many basics such as fresh milk, fresh vegetables and unbranded grains are exempt (0%). The rate for a specific product depends on its classification code (HSN for goods, SAC for services), so always check the official rate schedule for anything you sell.
CGST, SGST and IGST – who gets the tax?
India's GST is a "dual" system: both the Centre and the states collect it.
- Sale within the same state (for example, a shop in Pune selling to a customer in Pune): the GST is split into equal halves – CGST for the Centre and SGST for the state. At 18%, that is 9% CGST + 9% SGST.
- Sale to another state (a seller in Surat shipping to Bengaluru): the full rate is charged as IGST, collected by the Centre and later shared with the state where the goods are consumed.
- Union Territories without their own legislature, like Chandigarh, use UTGST in place of SGST.
For the customer, the total tax is the same either way. Only the split changes.
Worked example: how input tax credit works
Input tax credit (ITC) is what stops GST from being charged "tax on tax". Imagine a small electronics shop registered under GST, with everything taxed at 18%:
- The shop buys stock worth ₹10,000 and pays ₹1,800 GST to its supplier.
- It sells the stock for ₹15,000 and collects ₹2,700 GST from customers.
- When filing its return, it pays the government only the difference: ₹2,700 − ₹1,800 = ₹900.
The ₹900 is exactly 18% of the ₹5,000 value the shop added. Across the whole chain, the government receives 18% of the final price – ₹2,700 – paid in parts by each business, and the full amount is ultimately borne by the customer.
Do I need to register for GST?
Registration is compulsory once your total turnover in a financial year crosses a threshold. In most states the limits are:
- ₹40 lakh for businesses that supply only goods,
- ₹20 lakh for service providers (including most freelancers),
- lower limits (such as ₹10 lakh or ₹20 lakh) in some special category states.
Some businesses must register whatever their turnover – for example, those selling goods to other states and many sellers on e-commerce platforms. Registration is free on the official GST portal, and you receive a 15-character GSTIN. Its first two digits are your state code and the next ten are your PAN.
The composition scheme
Small traders, manufacturers and restaurants with turnover up to a limit (currently ₹1.5 crore in most states) can opt for the composition scheme. They pay tax at a low fixed rate on their turnover and file simpler returns. In exchange, they cannot collect GST from customers on their bills and cannot claim input tax credit. It suits businesses that sell mostly to final consumers and want less paperwork.
Freelancers with foreign clients
Services exported to clients abroad are generally treated as "zero-rated". Registered freelancers can usually export without paying IGST by filing a Letter of Undertaking (LUT) on the GST portal each year. The rules on what counts as an export are specific, so confirm with a tax professional.
Reading a GST bill
A proper tax invoice from a registered business should show:
- the seller's GSTIN,
- the HSN or SAC code of each item,
- the taxable value (price before GST),
- the GST rate and amount, split as CGST + SGST or shown as IGST,
- the total amount payable.
For packaged goods in shops, the printed MRP already includes GST – the shop cannot add GST on top of MRP.
Frequently asked questions
What are the main GST rates now?
Since 22 September 2025, most items are taxed at 5% or 18%, with a 40% rate for a small list of luxury and sin goods. Some items have special rates, like 3% on gold, and many essentials are exempt.
Why does my bill show CGST and SGST?
Because the seller and the place of supply are in the same state. The GST is split equally between the Centre (CGST) and the state (SGST).
Can a shop charge GST on top of MRP?
No. The MRP printed on packaged goods already includes all taxes, including GST.
Do freelancers need GST registration?
Generally, service providers must register once their annual turnover crosses ₹20 lakh (lower in some states). Check the current rules for your situation.