Paisa Decode
Beginner6 min read

GST Explained

Understand India's goods and services tax using simple invoices and business examples.

Simple explanation

GST is an indirect tax on most goods and services. The seller collects it from the buyer and deposits it with the government.

For sales inside one state, GST is usually split into CGST and SGST. For interstate sales and imports, IGST is used.

Real-life Indian example

If a restaurant bill before tax is Rs. 1,000 and GST is 5%, the GST is Rs. 50 and the final bill is Rs. 1,050.

Visual flow

Step 1

Buyer pays GST

Step 2

Seller collects

Step 3

GST return filed

Step 4

Government receives

Key terms

  • GST: Goods and Services Tax, an indirect tax on most goods and services in India.
  • CGST: Central GST collected by the Central Government on sales within a state.
  • SGST: State GST collected by the State Government on sales within a state.
  • Input Tax Credit: Credit a business gets for GST already paid on purchases, used to reduce GST payable on sales.

Common confusion

  • GST is not charged on petrol, diesel and alcohol for human consumption.
  • States participate in the GST Council, but one state cannot normally set separate GST rates for ordinary goods.
  • Input Tax Credit is for businesses, not ordinary final consumers.

Why this matters

GST affects bills, business pricing, invoices and how Centre and States share tax revenue.

Mini quiz

For a sale within one state, GST is usually split into which two parts?