What is GST?

GST was introduced on July 1, 2017, as 'One Nation, One Tax'. Before GST, businesses had to comply with multiple state and central taxes, leading to cascading taxation (tax on tax). GST eliminated this by allowing input tax credit — businesses can deduct the GST they paid on purchases from the GST they collect on sales.

Since the GST 2.0 reform took effect on 22 September 2025, India runs mainly on two rates: 5% for essentials and 18% as the standard rate, plus a special 40% rate for luxury and sin goods such as tobacco products. The older 12% and 28% slabs were removed and most items in them moved to 5% or 18%. Some items, such as fresh vegetables and milk, remain exempt or nil-rated.

For businesses, the key formula is: GST Amount = Original Price × GST Rate / 100. The final selling price = Original Price + GST Amount. Use ToolsDock's GST Calculator to add or remove GST from any amount instantly.

A designer in Pune bills a client in Pune ₹1,00,000 for a service taxed at 18%. The GST is ₹18,000, split equally as ₹9,000 CGST and ₹9,000 SGST, and the client pays ₹1,18,000. If the client were in Delhi, the same ₹18,000 would be charged as IGST instead.

To work backwards from a GST-inclusive price, divide by 1 plus the rate. ₹1,18,000 ÷ 1.18 gives ₹1,00,000. People often subtract 18% from the total, which is wrong: 18% of ₹1,18,000 is ₹21,240, not ₹18,000. The GST Calculator does this correctly in both directions.

The GST Council's September 2025 reform, often called GST 2.0, simplified the structure that came into effect on 22 September 2025. The standard rates are now 5% and 18%, with a special 40% rate on a short list of luxury and sin goods. The old 12% and 28% slabs no longer apply to new supplies.

Rates are tied to the HSN code of goods or SAC code of services, so two products that look similar can sit in different slabs. Always confirm the rate for your exact item on the official GST rate notification or with your accountant before printing an invoice.

Input tax credit (ITC) is what stops GST from stacking up as tax on tax. A registered business subtracts the GST it paid on purchases from the GST it collected on sales and deposits only the difference. For example, if you collected ₹18,000 on sales and paid ₹6,000 on business purchases, you deposit ₹12,000.

ITC has conditions: you need a valid tax invoice, the supplier must have filed and reported the sale, and the purchase must be for business use. Blocked credits, such as certain personal-use items, cannot be claimed. Small sellers under the composition scheme cannot claim ITC at all.