Understanding GST: The Basics
Goods and Services Tax (GST) is a comprehensive indirect tax that replaced multiple taxes like VAT, Service Tax, and Excise Duty. Implemented in July 2017, GST follows a dual structure with both Central and State governments having the power to levy and collect GST.
GST Structure in India
1. Central GST (CGST)
Levied by the Central Government on intra-state supply of goods and services. The revenue goes to the Central Government.
2. State GST (SGST)/Union Territory GST (UTGST)
Levied by State Governments on intra-state supply. UTGST applies to Union Territories without legislature.
3. Integrated GST (IGST)
Levied on inter-state supply of goods and services, imports, and supplies to SEZ. Collected by Central Government and distributed between Centre and States.
GST Rates in 2025
Standard GST Rates
| GST Rate | Items/Services | Examples |
|---|---|---|
| 0% | Essential items | Rice, wheat, milk, fruits |
| 5% | Necessities | Sugar, tea, coffee, medicines |
| 12% | Standard items | Mobile phones, computers |
| 18% | Most goods & services | AC, refrigerator, restaurant food |
| 28% | Luxury items | Cars, cigarettes, aerated drinks |
GST Calculation Methods
Method 1: Basic GST Calculation
Formula: GST Amount = (Taxable Value × GST Rate) ÷ 100
Example:
- Product Price: ₹10,000
- GST Rate: 18%
- GST Amount = (₹10,000 × 18) ÷ 100 = ₹1,800
- Total Amount = ₹10,000 + ₹1,800 = ₹11,800
Method 2: Reverse Calculation (Inclusive of GST)
Formula: Taxable Value = Total Amount ÷ (1 + GST Rate/100)
Example:
- Total Amount (including GST): ₹11,800
- GST Rate: 18%
- Taxable Value = ₹11,800 ÷ (1 + 18/100) = ₹11,800 ÷ 1.18 = ₹10,000
- GST Amount = ₹11,800 - ₹10,000 = ₹1,800
Intra-State vs Inter-State Transactions
Intra-State Transaction (Same State)
18% GST breakdown:
- CGST: 9%
- SGST: 9%
- Total: 18%
Inter-State Transaction (Different States)
18% GST breakdown:
- IGST: 18%
- CGST: 0%
- SGST: 0%
Input Tax Credit (ITC) Calculation
What is Input Tax Credit?
ITC allows businesses to reduce their GST liability by claiming credit for GST paid on purchases. This eliminates cascading effect of taxes.
ITC Calculation Example
Business Scenario:
- Sales for the month: ₹1,00,000 (18% GST = ₹18,000)
- Purchases for the month: ₹60,000 (18% GST = ₹10,800)
- Output Tax (on sales): ₹18,000
- Input Tax (on purchases): ₹10,800
- Net GST Payable: ₹18,000 - ₹10,800 = ₹7,200
Conditions for ITC
- You must have a valid tax invoice
- Goods/services must be received
- Supplier should have deposited the tax
- You should file GST returns
- ITC should be claimed within prescribed time limit
Reverse Charge Mechanism (RCM)
When Does RCM Apply?
- Import of goods and services
- Purchase from unregistered dealers (if purchase > ₹5,000/day)
- Specific services like legal, consulting services
- Goods transport agency services
- Services by director to company
RCM Calculation Example
Scenario: Purchase from unregistered dealer
- Purchase value: ₹10,000
- Applicable GST: 18%
- GST under RCM: ₹1,800
- You pay GST: ₹1,800 (can claim ITC if eligible)
Composition Scheme
Eligibility Criteria
- Annual turnover up to ₹1.5 crore (₹75 lakh for NE states)
- Not involved in inter-state supply
- Not engaged in specified activities (ice cream, tobacco, etc.)
- Not making taxable supply of services (except restaurant services)
Composition Rates (2025)
| Type of Supply | Rate |
|---|---|
| Manufacturers | 1% of turnover |
| Traders | 0.5% of turnover |
| Restaurant services | 5% of turnover |
| Other services | 6% of turnover |
GST Return Filing
Types of GST Returns
- GSTR-1: Monthly/Quarterly outward supplies
- GSTR-3B: Monthly summary return with tax payment
- GSTR-4: Quarterly return for composition dealers
- GSTR-9: Annual return
- GSTR-9C: Annual audit report (if turnover > ₹2 crore)
Due Dates for Returns
- GSTR-1: 11th of next month (monthly), 13th of next month (quarterly)
- GSTR-3B: 20th of next month
- GSTR-4: 18th of next month after quarter
- GSTR-9: 31st December of next financial year
Common GST Compliance Mistakes
- Late filing of returns resulting in penalties
- Incorrect classification of goods and services
- Claiming ITC without proper documentation
- Not reversing ITC on personal use items
- Errors in place of supply determination
- Not updating GST registration details
- Ignoring e-way bill requirements
GST Penalties and Interest
Late Filing Penalties
- GSTR-1: ₹50 per day per return (max ₹5,000)
- GSTR-3B: ₹50 per day per return (max ₹5,000)
- Annual Return: 0.25% of turnover or ₹25,000, whichever is higher
Interest on Late Payment
- 18% per annum on outstanding tax amount
- Calculated from due date until payment
- Compounded monthly
GST Audit and Assessment
Types of Audit
- Self-assessment: By taxpayer in returns
- Provisional assessment: When taxable value cannot be determined
- Summary assessment: To prevent revenue loss
- Best judgment assessment: When taxpayer fails to furnish returns
Digital Tools for GST Compliance
Government Portals
- GST Portal: www.gst.gov.in for return filing
- E-way Bill Portal: ewaybillgst.gov.in
- E-invoice Portal: For businesses with turnover > ₹5 crore
Mobile Apps
- GST RateFinder: For HSN code and rate determination
- GSTN Mobile App: For basic GST functions
- CalcMitra GST Calculator: For quick GST calculations
Future of GST in India
- Single GST rate structure under consideration
- Increased automation and AI in compliance
- Real-time invoice matching system
- Simplified return filing process
- Better integration with other tax systems
Conclusion
GST has revolutionized India's tax system by creating a unified market and eliminating cascading effects. Understanding GST calculations, compliance requirements, and leveraging technology tools is crucial for businesses to thrive in the GST regime. Regular updates on rate changes, compliance deadlines, and using reliable GST calculators can help ensure smooth operations.
Use our comprehensive GST calculator to simplify your tax calculations and stay compliant with the latest GST provisions.