Understanding GST in India
Goods and Services Tax (GST) is India’s unified indirect tax that replaced multiple taxes including VAT, Service Tax, Excise Duty, and others on July 1, 2017. GST is levied on the supply of goods and services at every stage of the supply chain, with input tax credit available to avoid cascading taxation.
India follows a dual GST model where both Central (CGST) and State (SGST) governments levy tax simultaneously on intra-state supplies, while IGST applies to inter-state transactions. Understanding GST calculations is essential for businesses, freelancers, and consumers alike.
GST Rate Structure in India (2026)
| Rate | Category | Examples |
|---|---|---|
| 0% | Essential items | Fresh fruits, vegetables, milk, bread, salt |
| 5% | Common use items | Packaged food, economy travel, fertilizers, newspapers |
| 12% | Standard items | Processed food, business class travel, computers |
| 18% | Standard services | Most services, electronics, restaurants (AC), financial services |
| 28% | Luxury/demerit | Automobiles, tobacco, aerated drinks, cement, 5-star hotels |
How to Calculate GST
GST can be calculated in two ways depending on whether you know the base price or the final (inclusive) price:
Adding GST (exclusive): If the base price is ₹10,000 and GST rate is 18%, then GST amount = ₹10,000 × 18/100 = ₹1,800. Final price = ₹11,800. For intra-state: CGST = ₹900, SGST = ₹900.
Removing GST (inclusive): If the final price is ₹11,800 inclusive of 18% GST, then base price = ₹11,800 × 100/118 = ₹10,000. GST amount = ₹1,800.
CGST, SGST, and IGST Explained
For intra-state transactions (buyer and seller in same state), the GST rate is split equally between CGST (Central) and SGST (State). For inter-state transactions, the full rate applies as IGST. For example, at 18% GST: intra-state = 9% CGST + 9% SGST; inter-state = 18% IGST. The total tax remains the same regardless.
GST Registration Threshold
GST registration is mandatory when annual turnover exceeds ₹40 lakhs for goods (₹20 lakhs for special category states) or ₹20 lakhs for services (₹10 lakhs for special category states). Voluntary registration is available below these thresholds and is advisable if you need input tax credit or deal with registered businesses.
Input Tax Credit (ITC)
One of the biggest advantages of GST is Input Tax Credit — businesses can claim credit for GST paid on purchases against GST collected on sales. This eliminates the cascading effect of tax-on-tax that existed in the pre-GST era. To claim ITC, the supplier must have filed their returns and the invoice must appear in your GSTR-2B.
Do freelancers need to charge GST?
Yes, if your annual service revenue exceeds ₹20 lakhs (₹10 lakhs in special category states), you must register for GST and charge 18% on your invoices. Export of services qualifies as zero-rated supply with refund of input GST. Many freelancers earning below the threshold still register voluntarily for professionalism and ITC benefits.
What is GST Composition Scheme?
The Composition Scheme allows small businesses with turnover up to ₹1.5 crore to pay GST at a reduced rate (1% for manufacturers, 5% for restaurants, 6% for service providers) without ITC benefits. It simplifies compliance by requiring only quarterly returns instead of monthly filings.
How is GST calculated on real estate?
For under-construction properties, GST is 5% (without ITC) for non-affordable housing and 1% (without ITC) for affordable housing (up to ₹45 lakhs). Ready-to-move-in properties with completion certificate are exempt from GST. Land value is excluded from GST calculation using 1/3rd abatement.
Is GST applicable on rent?
Residential rent is exempt from GST when rented to an individual for personal use. However, if a registered business takes residential property on rent, GST at 18% applies under reverse charge mechanism (RCM). Commercial property rent always attracts 18% GST if the landlord is registered.