The Goods and Services Tax (GST) replaced a complex web of indirect taxes in India. Understanding the rate structure, calculation method, and registration rules is essential for every business owner.
GST Rate Slabs (2025)
| Rate | What's Covered |
|---|---|
| 0% (Exempt) | Fresh milk, eggs, fresh vegetables/fruits, cereals, salt, contraceptives, educational services |
| 5% | Edible oils, sugar, tea, coffee, medicines, domestic LPG, economy class air travel |
| 12% | Processed food, butter, cheese, mobile phones (under ₹12K), business class air travel |
| 18% | Most services (restaurants, IT), computers, FMCG products, financial services |
| 28% | Luxury cars, motorcycles, aerated drinks, tobacco, cement, luxury hotels |
How GST is Calculated
Adding GST to a base price: Taxable value × (1 + GST rate / 100)
Example: Product costs ₹1,000 + 18% GST = ₹1,000 + ₹180 = ₹1,180 total
Extracting GST from a GST-inclusive price: Price × GST rate / (100 + GST rate)
Example: Inclusive price ₹1,180 at 18% → GST = ₹1,180 × 18/118 = ₹180
CGST + SGST vs IGST
- Intra-state sale (within the same state): GST is split equally as CGST + SGST. At 18% GST, that's 9% CGST + 9% SGST.
- Inter-state sale (across states): Entire GST goes as IGST (Integrated GST). 18% IGST = one line item.
GST Registration: When Is It Mandatory?
- Turnover exceeds ₹40 lakhs per year for goods (₹20L for most states for services)
- Turnover exceeds ₹20 lakhs per year in special category states (hilly/NE states)
- Inter-state supply of goods (regardless of turnover)
- E-commerce sellers (mandatory, regardless of turnover)
Composition Scheme
Small businesses with turnover below ₹1.5 crore (₹75L for services) can opt for the Composition Scheme. They pay a flat low rate (1%–6% depending on category), file quarterly returns instead of monthly, and cannot claim input tax credits. Suitable for businesses with mostly local customers.