GST Basics: Overview

Before 2017, we had a mess: VAT, Service Tax, Excise Duty, Octroi, Luxury Tax. GST replaced them all.

1. What is GST?

Goods & Services Tax is an Indirect Tax levied on the supply of goods and services.

• Indirect: You don't pay it to Govt directly. You pay the shopkeeper, who pays the Govt.
• Destination Based: Tax goes to the state where the product is consumed, not made.

2. The 3 Components

1. CGST (Central GST): Goes to Central Govt.
2. SGST (State GST): Goes to State Govt.
3. IGST (Integrated GST): For inter-state sales (e.g., Maharashtra to Gujarat). Collected by Centre, shared with State.

Example:

• You buy a Phone in Mumbai (from a Mumbai shop). GST 18%.
  • 9% CGST + 9% SGST.
• You buy a Phone from Delhi (delivered to Mumbai). GST 18%.
  • 18% IGST.

3. GST Slabs

• 0%: Essentials (Milk, Bread, Salt).
• 5%: Mass consumption (Spices, Tea, Economy Air Travel).
• 12%: Processed food, Mobiles.
• 18%: Standard rate (Soaps, Toothpaste, Computers, Restaurants).
• 28%: Luxury/Sin goods (Cars, ACs, Cigarettes).

4. Input Tax Credit (ITC) - The Game Changer

This prevents "Tax on Tax" (Cascading Effect).

Scenario:

1. Manufacturer buys Raw Material for ₹100 + ₹18 Tax.
2. He sells Finished Good for ₹200 + ₹36 Tax.
3. Net Tax to Pay: Output Tax (₹36) - Input Tax (₹18) = ₹18.
4. He claims credit for the tax already paid on raw material.

7-Day Action Plan

Day 1: Look at a Restaurant Bill. Check the CGST + SGST split (usually 2.5% + 2.5% = 5%).
Day 2: Look at an Amazon Invoice. If seller is from another state, check IGST.
Day 3: Understand "Composition Scheme". Small businesses (Turnover < ₹1.5 Cr) pay flat 1% tax but can't collect GST from customers.
Day 4: Check if your freelancer friend has a GST number (Mandatory if turnover > ₹20 Lakhs).
Day 5: Read about "GST Council". They decide the rates.
Day 6: Understand why Petrol and Alcohol are outside GST. (States want to tax them heavily).
Day 7: Appreciate that GST made moving goods across India faster (No Octroi checkposts).

Quiz

💡 Final Wisdom: GST is not perfect, but it unified the Indian market. One Nation, One Tax.