Business Original explainer
One tax, two main rates, and a bill that finally makes sense: what GST is, how it is charged, and what changed in 2025.
Every time you buy a packet of biscuits, eat at a restaurant, or pay a phone bill, a part of what you pay is tax. For most goods and services in India, that tax is GST, short for Goods and Services Tax. It is the tax you see printed on a bill, often split into small lines with names like CGST and SGST. GST began on 1 July 2017, and it replaced a long list of older central and state taxes. This article explains what GST is, how it is charged, what the current rates are, and what changed for ordinary buyers and small businesses.
GST is a single indirect tax on the supply of goods and services. Indirect means the tax is collected from the buyer at the time of purchase, rather than being charged directly on a person's income. Before GST, a product could pass through several different taxes as it moved from a factory to a shop. A maker might pay excise duty, a trader might pay VAT in one state, and a service might carry service tax. GST brought those taxes into one system, so a business deals with one tax framework across India, even though the money is still shared between the Centre and the states.
GST is also a destination-based tax. That means the tax revenue belongs to the state where the goods or services are finally used, not the state where they were made. If a phone is made in one state and sold in another, the tax goes to the state of the buyer. This design was meant to end the old problem of tax being collected again and again at each stage without credit for tax already paid. Under GST, a business can usually claim credit for the GST it paid on its purchases, and pay tax only on the value it added. That credit is called input tax credit.
The names on a bill look confusing at first, but they follow one simple rule: where the buyer and seller are. When both are in the same state, the tax is split into two equal parts. One part is CGST, the Central GST collected by the Centre. The other is SGST, the State GST collected by that state. On an item taxed at 18 percent, for example, the bill will usually show 9 percent CGST and 9 percent SGST. In Union Territories without a legislature, the state share is called UTGST instead of SGST. When the buyer and seller are in different states, the whole tax is charged as IGST, short for Integrated GST. The Centre collects it first and then shares the state's part with the state where the buyer is based.
For a buyer, the total rate is what matters most. Whether it is shown as CGST plus SGST or as a single IGST line, the amount added to the price should be the same for the same item and the same rate. For a business, the split matters for records and returns, because CGST, SGST, and IGST are reported separately. That is why a proper GST bill lists the rate, the taxable value, and each tax line, rather than a single unexplained total.
When GST began in 2017, most goods and services fell into four main slabs: 5 percent, 12 percent, 18 percent, and 28 percent, with some essentials at zero percent. That structure lasted for eight years. Then, on 3 September 2025, the GST Council approved a simplification, and the new rates took effect on 22 September 2025. The change is often called GST 2.0. Under it, the 12 percent and 28 percent slabs were removed for most goods and services. India now runs mainly on two rates: 5 percent for everyday and merit items, and 18 percent as the standard rate for most other goods and services.
Most items that were at 12 percent moved down to 5 percent, and most items that were at 28 percent moved down to 18 percent. A small group of luxury and sin goods moved instead to the new 40 percent rate. Tobacco and pan masala were handled separately: they stayed on their old rates for a time, then moved to 40 percent from 1 February 2026, with the old compensation cess replaced by excise duty and a health cess charged outside GST.
For buyers, the clearest change is a simpler bill. With fewer slabs, it is easier to know whether an item should carry 5 percent or 18 percent, and harder for a seller to hide behind a confusing rate. Many everyday items became cheaper after the September 2025 change because they moved from 12 percent to 5 percent, while many larger purchases moved from 28 percent to 18 percent. The saving is not always passed on, because a shop may change its base price, so the final price is still the number to check.
GST is still a work in progress. Rates, rules, and filing steps change, and some items, such as petrol, diesel, and alcohol for human consumption, remain outside GST. For most people, though, the idea is now simple: one tax, two main rates, and a bill that shows how the tax was split.
This explainer was written by The Daily Short's desk from the sources listed above. It is general information, not professional advice. Spot an error? See our Corrections Policy or tell us via the Contact page and we will correct it. Follow our official Instagram @thedaily.short.