GST Basics: What You're Actually Paying and Why

What GST actually replaced

Before GST (Goods and Services Tax), a single purchase could carry several separate central and state taxes stacked on top of each other. GST consolidated these into one tax, applied uniformly across India, with the rate depending on the category of good or service rather than which state you're in.

The current rate structure

Following the GST 2.0 rate rationalization effective 22 September 2025, India's GST slabs were simplified from five rates down to four:

• 0% (Nil) - essential items like most dairy products, select lifesaving drugs, and educational materials.
• 5% - mass-consumption items and daily necessities, including personal care products and packaged foods.
• 18% - the standard rate, covering most services and the bulk of manufactured goods.
• 40% - a new top rate specifically for luxury and "sin" goods like tobacco products and pan masala.

The earlier 12% and 28% slabs were largely folded into this simpler four-rate structure - most items previously at 12% moved to 5%, and most at 28% moved to 18%.

(GST 2.0 rate structure checked as of September 2026; rates are set by the GST Council and can change with future Council meetings, so treat the four-slab structure as current rather than permanent.)

CGST, SGST, and IGST: the split you see on a bill

For a purchase within the same state, GST splits evenly into CGST (Central GST, goes to the central government) and SGST (State GST, goes to the state government) - an 18% rate shows up as 9% CGST + 9% SGST on the invoice. For a purchase across state lines, a single IGST (Integrated GST) applies instead, later apportioned between the relevant central and state governments. As a consumer, the total rate you pay is the same either way - this split just determines which government the tax revenue flows to.

Why this matters beyond curiosity

GST is charged on nearly every good and service you buy, and rate changes (like the GST 2.0 rationalization) directly change retail prices - a rate cut on an item can lower its shelf price even without the manufacturer changing anything else. Understanding the basic structure also helps make sense of news about "GST Council meetings" that regularly appear in financial media.

The takeaway

The number on your bill labeled GST isn't an arbitrary markup - it's a specific, Council-set rate tied to what category the item falls into, split between central and state government depending on where the transaction happens.