What You Need to Know About India Sales Tax (GST)

India's GST underwent a major overhaul in September 2025, collapsing six tax slabs into just four: 0%, 5%, 18%, and 40%. Whether you sell goods online, run a manufacturing unit, or provide professional services, this simplified structure changes how you calculate, collect, and file. Here is everything you need to know about the current GST system and how to stay compliant.

1. What is GST?

GST is India's unified indirect tax on the supply of goods and services. It replaced multiple older taxes like VAT, service tax, and excise duty in 2017. GST is charged at the point of sale or supply and collected by the seller on behalf of the government. Following the GST 2.0 reforms effective 22 September 2025, the tax now uses a simplified slab structure with rates of 0%, 5%, 18%, and 40%. The old 12% and 28% slabs were abolished. The 5% slab covers essentials like food, medicines, and insurance. The 18% slab covers standard goods like electronics, cement, and vehicles. The 40% slab applies to luxury and sin goods such as aerated drinks, premium cars, and yachts.

There are three types of GST:

CGST (Central GST) collected by the central government
SGST (State GST) collected by the state government
IGST (Integrated GST) applied on interstate transactions

2. Who does it apply to?

This usually applies to:

Businesses with annual turnover above INR 40 lakh (INR 20 lakh for services)
E-commerce operators and sellers on online platforms
Interstate suppliers of goods and services
Importers and exporters
Casual taxable persons conducting occasional business
Businesses previously registered under VAT, service tax, or excise

3. Why does it matter?

Understanding GST helps you:

Stay compliant with tax laws
Avoid penalties and late fees
Keep proper records
File and pay correctly
Plan your cash flow better

4. How does it work?

Here's the basic process:

Register for GST on the GST portal and get your GSTIN (15-digit number)
Classify your goods or services under the correct HSN/SAC code
Charge the applicable GST rate on every taxable sale
Issue GST-compliant invoices to your customers
Collect GST from buyers and track your input tax credits
File monthly or quarterly returns depending on your turnover
Pay the net GST (output tax minus input tax credit) to the government
File your annual return by 31 December of the following year

5. What forms are involved?

GSTR-1 - Details of outward supplies (sales) filed monthly by the 11th or quarterly
GSTR-3B - Summary return with tax payment filed monthly by the 20th
GSTR-9 - Annual return due by 31 December of the following financial year
GSTR-9C - Reconciliation statement for businesses with turnover above INR 5 crore
GSTR-4 - Annual return for composition scheme taxpayers, due by 30 April
GSTR-7 - TDS return filed monthly by the 10th
GSTR-8 - TCS return for e-commerce operators filed monthly by the 10th

6. What information do you need?

Before handling GST, make sure you have:

PAN card of the business or proprietor
Aadhaar card for identity verification
Business registration or incorporation certificate
Bank account details with cancelled cheque
Address proof for your place of business
HSN or SAC codes for your products and services
Digital signature (for companies and LLPs)
Details of authorized signatory

7. Important deadlines

GSTR-1 (monthly): 11th of the following month
GSTR-3B (monthly): 20th of the following month
GSTR-1 (quarterly, QRMP scheme): 13th of the month following the quarter
GSTR-3B (quarterly, QRMP scheme): 22nd or 24th of the month following the quarter
GSTR-9 (annual return): 31 December of the following financial year
GSTR-4 (composition scheme): 30 April of the following financial year
Year-end requirements: Reconcile all input tax credits, match with GSTR-2A/2B, and file GSTR-9

8. Common mistakes to avoid

Using the old 12% or 28% slab rates instead of the revised 5%, 18%, or 40% rates (effective 22 September 2025)
Not reconciling GSTR-2A/2B with your purchase records
Claiming input tax credit on blocked items (like food, personal vehicles)
Missing the filing deadline and paying late fees of INR 50/100 per day
Filing returns with mismatched GSTIN details
Not issuing proper GST-compliant invoices
Forgetting to reverse input tax credit when a supplier defaults

9. Simple example

You sell electronics in Mumbai. A customer buys a laptop for INR 50,000.

GST rate on laptops: 18%
GST charged: INR 50,000 x 18% = INR 9,000
Total invoice: INR 59,000
Since this is an intra-state sale: CGST = INR 4,500 + SGST = INR 4,500

You purchased that laptop from a wholesaler for INR 35,000 + 18% GST (INR 6,300).

Your input tax credit: INR 6,300
Net GST payable: INR 9,000 - INR 6,300 = INR 2,700

You pay INR 2,700 to the government when you file GSTR-3B.

10. FAQ

Q: Do I need to register for GST if my turnover is below the threshold? A: No, registration is optional if your turnover is below INR 40 lakh for goods or INR 20 lakh for services. But you can register voluntarily to claim input tax credits.

Q: What is the composition scheme? A: Small businesses with turnover up to INR 1.5 crore can opt for the composition scheme. You pay a flat rate (1-6% depending on business type) and file only one annual return instead of monthly returns.

Q: Can I claim input tax credit on all purchases? A: No. Certain items like motor vehicles for personal use, food and beverages, and membership of clubs are blocked from input tax credit.

Q: What happens if I file GST returns late? A: You pay a late fee of INR 50 per day (INR 25 CGST + INR 25 SGST) for regular returns, or INR 20 per day for nil returns. Interest of 18% per annum also applies on unpaid tax.

Q: Do exports attract GST? A: Exports are zero-rated. You can either export under bond or letter of undertaking without paying GST, or pay IGST and claim a refund later.

11. Final takeaway

GST touches nearly every business transaction in India, so staying on top of your filing deadlines, input tax credits, and slab classifications keeps your business compliant and your cash flow healthy.

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What you need to know about India Sales Tax (GST): Understand the simplified slab structure (5%, 18%, 40%), monthly filing deadlines, and input tax credit system to keep your business compliant and avoid penalties.

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