What is GST? Explained Simply
GST stands for Goods and Services Tax. It's a single indirect tax charged on the supply of goods and services across India. Businesses collect it at each stage of sale, but the final customer actually bears it. GST came into effect on 1 July 2017 and replaced a tangle of older taxes like VAT, service tax and excise duty with one system. If you're learning accounting or Tally, GST is the topic you'll use every day.
What "indirect tax" means
An indirect tax is one you pay through a business, not directly to the government. When you buy a phone, the shop adds GST to the price, collects it from you, and passes it to the government. You paid the tax; the shop only collected it. That's why GST sits on your bills.
Why GST replaced the old taxes
Before GST, a product could be taxed several times over: excise when made, VAT when sold, and more, with different rules in every state. This "tax on tax" pushed up prices. GST merged these into one tax with the same rules nationwide, so a product is taxed once, cleanly, with credit for tax already paid earlier in the chain.
The types of GST
| Type | Full form | When it applies |
|---|---|---|
| CGST | Central GST | On sales within a state (goes to the Centre) |
| SGST | State GST | On sales within a state (goes to the State) |
| IGST | Integrated GST | On sales between states (interstate) |
For a sale inside your own state, GST splits into CGST + SGST. For a sale to another state, it's a single IGST. There's also UTGST for Union Territories, which works like SGST.
Worked example
A trader in Jammu & Kashmir sells goods worth ₹10,000 at 18% GST:
- Within J&K: ₹900 CGST + ₹900 SGST = ₹1,800 total GST. Invoice = ₹11,800.
- To Delhi (interstate): ₹1,800 IGST. Invoice = ₹11,800.
The customer pays the same ₹1,800 either way; only the split changes based on where the buyer is.
Who has to register for GST
A business must register for GST once its turnover crosses the threshold (commonly ₹40 lakh for goods and ₹20 lakh for services, lower in some special-category states). Registered businesses get a GSTIN, a 15-digit number, and must charge GST and file returns. Exact thresholds change, so confirm the current limit on the official GST portal.
Key terms you'll meet
- GSTIN — your 15-digit GST registration number.
- Input Tax Credit (ITC) — credit for GST you paid on purchases, set off against GST you collect on sales.
- GST return — a periodic statement (like GSTR-1, GSTR-3B) filed on the GST portal.
Pro tips
- Remember the one rule that drives everything: same state = CGST + SGST, different state = IGST.
- The rate is the same whether it's split or not; 18% is 18% either way.
- For official rules and current thresholds, use the government portal at gst.gov.in rather than guessing.
Common mistakes
- Thinking the business pays GST. The business collects it; the final customer bears it.
- Mixing up CGST/SGST with IGST. It depends on whether the buyer is in the same state, not on the product.
- Assuming every small business must register. Registration depends on turnover and type; check the threshold.
Key takeaways
- GST is one indirect tax on goods and services across India.
- It replaced VAT, service tax, excise and others from 1 July 2017.
- Same-state sale = CGST + SGST; interstate = IGST.
- The final customer bears GST; businesses collect and remit it.
Practice task
Take a ₹5,000 sale at 18% GST. Work out the GST amount and the invoice total for (a) a sale within your state (CGST + SGST) and (b) a sale to another state (IGST). Note how the total is the same but the split differs.
GST is a must-have skill for accounting jobs. Learn it properly, in Tally, in the ADFA program at HCI.
Frequently Asked Questions
What is GST in simple words?
GST is a single indirect tax on the supply of goods and services in India. Businesses collect it at each sale, but the final customer ultimately pays it.
What is the full form of GST?
GST stands for Goods and Services Tax.
What are the types of GST?
CGST and SGST apply to sales within a state, and IGST applies to interstate sales. UTGST applies in Union Territories.
When was GST introduced in India?
GST came into effect on 1 July 2017, replacing older taxes like VAT, service tax and excise duty.
Who has to pay GST?
The final customer bears GST. Registered businesses collect it on sales, claim credit for GST paid on purchases, and pay the difference to the government.