What is GST?

Published on August 08, 2026 • Last updated August 08, 2026

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Definition

Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services.

Detailed Explanation

In-Depth Guide

Key Takeaway

Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based indirect tax levied on the manufacture, sale, and consumption of goods and services. Introduced to unify the tax structure under 'One Nation, One Tax', GST replaced a complex web of pre-existing taxes including excise duty, service tax, VAT, and octroi.

The fundamental principle of GST is value addition at each stage of the supply chain. Tax is charged only on the value added at each step, allowing businesses to claim Input Tax Credit (ITC) for the GST already paid on raw materials and inventory purchases. This eliminates the cascading tax effect ('tax-on-tax') that historically inflated consumer prices.

GST is categorized into three main components: CGST (Central GST) and SGST (State GST) for transactions within the same state, and IGST (Integrated GST) for sales between different states or imports. Standardized tax slabs ensure transparency for consumers and easier digital compliance for businesses.

Related Formula

Learn how GST is calculated

View GST Formula

Mathematical Formula

To Add GST: $$GST\ Amount = Original\ Cost \times \frac{GST\%}{100}$$ $$Total\ Price = Original\ Cost + GST\ Amount$$ To Remove GST: $$Original\ Cost = Total\ Price \div \left(1 + \frac{GST\%}{100}\right)$$ $$GST\ Amount = Total\ Price - Original\ Cost$$

Calculation Examples

Adding 18% GST to a service worth $1,000: - Original Cost = $1,000 - GST Rate = 18% - GST Amount = $1,000 * 0.18 = $180 - Total price paid by customer = $1,180 Removing 18% GST from a retail price of $1,180: - Original Cost = $1,180 / 1.18 = $1,000 - GST Amount = $1,180 - $1,000 = $180

Frequently Asked Questions

CGST (Central GST) and SGST (State GST) are levied on intra-state transactions (within the same state) and split equally. IGST (Integrated GST) is levied on inter-state transactions and collected by the central government.

Input Tax Credit allows a business to reduce the GST paid on purchases from the GST liability it collects on sales, effectively taxing only the value added at that stage.

Businesses with aggregate turnover exceeding specified thresholds (e.g. ₹40 Lakhs for goods and ₹20 Lakhs for services in India) must register and file GST returns.

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