GST Basics: A Complete Beginner's Guide for FY 2026-27

What is GST?

Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services in India. It replaced multiple indirect taxes like VAT, service tax, excise duty, and others, creating a unified tax structure across the country.

GST was introduced on 1st July 2017 and is governed by the GST Council, which decides the tax rates, rules and regulations.

CGST, SGST and IGST — What's the Difference?

GST is split into three components depending on whether the transaction is within a state or across states:

Component	Full Form	When It Applies	Collected By
CGST	Central GST	Intra-state supply (within same state)	Central Government
SGST	State GST	Intra-state supply (within same state)	State Government
IGST	Integrated GST	Inter-state supply (between different states)	Central Government

Example: If you sell goods within Maharashtra at 18% GST, you charge 9% CGST + 9% SGST. If you sell from Maharashtra to Karnataka, you charge 18% IGST.

GST Rate Slabs

GST has four main rate slabs, with specific goods and services falling under each:

GST Rate	Examples
5%	Packaged food items, footwear below Rs 500, transport services, small restaurants
12%	Processed food, business class air tickets, apparel above Rs 1,000
18%	Most services (IT, telecom, financial), restaurants in hotels, branded garments
28%	Luxury goods, automobiles, cement, aerated drinks, tobacco products

Some essential items like fresh fruits, vegetables, milk, and grains are exempt from GST (0% rate).

Input Tax Credit (ITC) — The Core Benefit of GST

Input Tax Credit allows businesses to offset the GST paid on purchases (inputs) against the GST collected on sales (output). This prevents the cascading effect of tax-on-tax that existed in the pre-GST era.

How ITC Works

• You pay GST when purchasing raw materials or services for your business
• You collect GST when selling your goods or services
• You can claim the GST paid on inputs as credit and pay only the difference to the government

Key ITC Conditions

• You must have a valid tax invoice from the supplier
• The goods/services must be used for business purposes
• The supplier must have filed their GST return and paid the tax
• ITC cannot be claimed on certain blocked items (e.g., personal use vehicles, food and beverages for employees)

GST Registration Threshold

Not every business needs GST registration. The thresholds are:

Business Type	Threshold (General States)	Threshold (Special Category States)
Goods supplier	Rs 40 lakh annual turnover	Rs 20 lakh annual turnover
Services provider	Rs 20 lakh annual turnover	Rs 10 lakh annual turnover

Mandatory registration applies regardless of turnover for inter-state suppliers, e-commerce sellers, and certain other categories.

Composition Scheme

The Composition Scheme is a simplified GST compliance option for small businesses:

Feature	Regular GST	Composition Scheme
Eligibility	Any registered taxpayer	Turnover up to Rs 1.5 crore (goods) / Rs 50 lakh (services)
Tax Rate	Standard slab rates	1% (manufacturers), 5% (restaurants), 6% (service providers)
ITC	Available	Not available
Filing	Monthly/Quarterly returns	Quarterly returns only
Invoice	Tax invoice with GST breakup	Bill of supply (no GST charged)
Inter-state supply	Allowed	Not allowed

GST Returns — Key Filings

• GSTR-1: Details of outward supplies (sales) — filed monthly or quarterly
• GSTR-3B: Summary return with tax payment — filed monthly or quarterly
• GSTR-9: Annual return — filed once a year
• GSTR-9C: Reconciliation statement (for turnover above Rs 5 crore)

FAQ

What is the difference between GST-inclusive and GST-exclusive pricing?

GST-inclusive means the price already includes GST. GST-exclusive means GST will be added on top of the listed price. Our GST Calculator can compute both ways.

Can I claim ITC under the Composition Scheme?

No. Businesses registered under the Composition Scheme cannot claim Input Tax Credit. This is one of the key trade-offs for simplified compliance.

Is GST applicable on rent?

Residential rent is exempt from GST when rented to an individual for personal use. Commercial rent attracts 18% GST.

What happens if I don't register for GST when required?

Operating without GST registration when your turnover exceeds the threshold can attract penalties, interest on unpaid tax, and legal consequences.

Can freelancers and consultants benefit from GST registration?

Yes, even if below the threshold, voluntary registration allows you to claim ITC on business expenses and issue proper tax invoices to clients.