What is GST?
Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. Introduced in India on 1st July 2017, GST replaced a complex web of central and state indirect taxes such as excise duty, VAT, and service tax with a single, unified system.
GST is collected at each stage of the supply chain, but the tax burden ultimately falls on the end consumer. Businesses can claim credit for the taxes they've already paid on inputs — a mechanism called the Input Tax Credit (ITC).
Types of GST in India
There are four types of GST levied in India:
- CGST (Central GST) — Collected by the Central Government on intra-state sales (within the same state).
- SGST (State GST) — Collected by the State Government on intra-state sales. CGST and SGST are always equal and together make up the full GST rate.
- IGST (Integrated GST) — Collected by the Central Government on inter-state sales (sales across different states). IGST = CGST + SGST rate combined.
- UTGST (Union Territory GST) — Applied in Union Territories instead of SGST.
GST Rate Slabs in India (2026)
The GST Council categorizes goods and services into five tax slabs based on their nature and necessity:
| GST Rate | Examples |
|---|---|
| 0% | Fresh fruits, vegetables, milk, eggs, bread, books, newspapers |
| 5% | Packaged food, life-saving drugs, household necessities, economy class air travel |
| 12% | Processed food, computers, business class travel, mobile phones |
| 18% | Most services (restaurants, telecom), electronics, capital goods, cameras, shampoo |
| 28% | Luxury cars, tobacco, aerated drinks, gambling, cinema |
How to Calculate GST (Exclusive GST)
When the price quoted is exclusive of GST (the listed price does not include tax), use this formula:
GST Amount = (Original Price × GST Rate) ÷ 100
Final Price = Original Price + GST Amount
Example — Exclusive GST
A laptop costs ₹50,000 and attracts 18% GST. The seller is based in Gujarat and the buyer is also in Gujarat (intra-state transaction).
- CGST (9%) = ₹50,000 × 9 ÷ 100 = ₹4,500
- SGST (9%) = ₹50,000 × 9 ÷ 100 = ₹4,500
- Total GST = ₹9,000
- Final Price = ₹50,000 + ₹9,000 = ₹59,000
How to Calculate GST (Inclusive GST)
When the price quoted already includes GST (the MRP on a product), you need to back-calculate to find the original price and the tax component:
Original Price = Final Price × 100 ÷ (100 + GST Rate)
GST Amount = Final Price − Original Price
Example — Inclusive GST
A phone is sold at MRP ₹23,600, which includes 18% GST. What is the base price?
- Original Price = ₹23,600 × 100 ÷ 118 = ₹20,000
- GST Amount = ₹23,600 − ₹20,000 = ₹3,600
- CGST (9%) = ₹1,800 | SGST (9%) = ₹1,800
Inter-State GST Example (IGST)
If goods worth ₹1,00,000 are sold from Maharashtra to Rajasthan at 18% GST, only IGST applies — no split into CGST/SGST.
- IGST (18%) = ₹1,00,000 × 18 ÷ 100 = ₹18,000
- Total Invoice Value = ₹1,18,000
GST Registration Threshold
Businesses with annual turnover exceeding ₹40 lakh (₹20 lakh for special category states, and ₹10 lakh for certain hill states) must register for GST. Service providers with turnover above ₹20 lakh are also required to register.
Common GST Mistakes to Avoid
- Wrong GSTIN on invoices — Always double-check buyer and supplier GSTINs.
- Applying wrong tax type — CGST+SGST for intra-state; IGST for inter-state. Getting this wrong causes reconciliation issues.
- Missing return filing deadlines — Late fees and interest accumulate quickly. GSTR-1 is due on the 11th, GSTR-3B on the 20th of the following month.
- Not claiming ITC on time — Input Tax Credit must be claimed within the prescribed period or it is lost.
Quick GST Calculation Formula Summary
| Scenario | Formula |
|---|---|
| GST on base price (exclusive) | GST = Price × Rate% ÷ 100 |
| Final price (exclusive) | Final = Price + GST |
| Base price from MRP (inclusive) | Base = MRP × 100 ÷ (100 + Rate%) |
| GST from MRP (inclusive) | GST = MRP − Base |
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