Understanding GST (Goods and Services Tax)
GST (Goods and Services Tax) is a destination-based indirect tax levied on the supply of goods and services in India. It replaced multiple cascading taxes like VAT, Service Tax, and Excise Duty, creating a "One Nation, One Tax" system.
Businesses need to calculate GST accurately to file returns and generate e-invoices. Consumers use it to cross-check bills for big-ticket purchases like cars or appliances.
Current GST Rate Slabs (2025)
| Rate | Items Covered |
|---|---|
| 0% (Exempt) | Fresh food (milk, eggs, vegetables), Books, Newspapers |
| 3% | Gold, Silver, Platinum, Diamonds |
| 5% | Packaged food, Medicines, Economy Air Travel |
| 12% | Mobiles, Processed Food, Business Class Air Travel |
| 18% | Electronics, IT Services, Restaurants, Banking |
| 28% | Luxury Cars, Cement, ACs, Tobacco (+ Cess) |
Components of GST
- 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.
- IGST (Integrated GST): Collected by the Central Government on inter-state sales (between two states) and imports.
Reverse GST Calculation Formula
Often, you know the final MRP (Maximum Retail Price) and need to find the actual base price before tax. This is called a Reverse GST Calculation. It is essential for traders to determine their profit margins.
Example: If a phone costs ₹11,800 (inclusive of 18% GST):
Base Price = 11,800 / 1.18 = ₹10,000
GST Amount = ₹1,800
Benefits of GST System
- Eliminates Cascading Effect: Input Tax Credit avoids tax on tax.
- Higher Threshold: Businesses up to ₹40L turnover are exempt.
- Composition Scheme: Simplified compliance for turnover up to ₹1.5 Cr.