GST in brief
How India's goods and services tax works, who decides it, and what changed in September 2025
Rates as in force from 22 September 2025; collections to September 2026
Verified 16 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room what they paid GST on this week. Most will name a restaurant bill or a phone bill. Then ask who actually sends that money to the government. This deck answers that, and explains the rate changes of September 2025.
GST taxes the value added at each step of a sale, with credit for tax already paid. The final buyer bears it.
It replaced a long list of central and state taxes on 1 July 2017. The Centre and the States levy it together, on the same sale.
Trainer notes
CBIC describes GST as a destination-based tax on consumption: the tax goes to the State where the goods or services are consumed. Keep the two ideas apart: who pays the tax to the government (each registered seller in the chain) and who bears it (the final buyer).
Four terms to know on a GST bill
CGST
Central GST. Levied by the Centre on a sale of goods or services within one State.
SGST / UTGST
State GST, or Union Territory GST. Levied on the same sale, at the same time as CGST.
IGST
Integrated GST, on sales between States and on imports. The Centre collects it and it is shared with the States.
Input tax credit
GST paid on eligible business purchases is set off against GST due on sales. Only the value added is taxed.
Sources: CBIC, Frequently Asked Questions on GST, 3rd edition, 15 Dec 2018 (Q1, Q8); Constitution of India, Article 269A.
Trainer notes
On a bill within one State you will see CGST and SGST, usually half of the rate each. On a sale across States you will see IGST at the full rate instead. Input tax credit is the feature that stops tax being charged on tax.
How the credit chain works
THE SET-UP (ASSUMED)
One rate of 18% at every step. Prices are before tax.
A mill sells cloth to a tailor for ₹1,000. The tailor sells a shirt to a shop for ₹1,500. The shop sells it to you for ₹2,000.
- Mill: GST on ₹1,000 = ₹180. No credit to claim. It pays ₹180.
- Tailor: GST on ₹1,500 = ₹270, less ₹180 credit for the GST on the cloth. It pays ₹90.
- Shop: GST on ₹2,000 = ₹360, less ₹270 credit. It pays ₹90.
- Total paid: 180 + 90 + 90 = ₹360, which is 18% of ₹2,000. With no credit it would be 180 + 270 + 360 = ₹810.
Result: Each seller pays GST only on the value it adds. You pay ₹2,360 and bear all ₹360 of the tax.
Illustration with assumed figures and a single assumed rate. Real rates differ by item.
Trainer notes
The ₹810 line shows what credit prevents: tax on tax, often called cascading. Each seller adds value of ₹1,000, ₹500 and ₹500, and 18% of each is ₹180, ₹90 and ₹90. Credit works only between registered businesses; you, as the final buyer, cannot claim it back.
What GST replaced, and what it left out
Central taxes replaced
Central excise duty, service tax, additional customs duties (CVD and SAD), and central surcharges and cesses on supplies.
State taxes replaced
State VAT, central sales tax, entry tax, luxury tax, purchase tax, State entertainment tax, and taxes on lotteries, betting and gambling.
Left outside
Alcohol for human consumption, by the Constitution. Petrol, diesel, crude oil, natural gas and jet fuel until the GST Council recommends a date.
Sources: CBIC, FAQs on GST, 3rd edition, 15 Dec 2018 (Q3, Q5, Q6); Constitution of India, Article 279A(5) and Article 366(12A).
Trainer notes
For the five petroleum products, central excise and State VAT continue, so businesses cannot set the tax on fuel off against GST. Tobacco is within GST, and the Centre can also levy excise duty on it. Entertainment tax levied by local bodies was not subsumed.
Who decides: the GST Council
Members
The Union Finance Minister chairs it. Members are the Union Minister of State for Revenue or Finance and a minister from each State.
- 3/4
Votes
A decision needs three-quarters of the weighted votes cast. The Centre's vote counts for one-third; all States together, two-thirds.
What it recommends
Rates, exemptions, the turnover threshold for registration, which taxes are merged into GST, and when petroleum products come in.
Source: Constitution of India, Article 279A (inserted by the Constitution (One Hundred and First Amendment) Act, 2016), as reproduced by the GST Council Secretariat.
Trainer notes
The arithmetic matters: one-third is less than three-quarters, and so is two-thirds. Neither the Centre alone nor the States alone can carry a decision. The Council recommends; the Centre and the States then notify the rates under their own GST laws. Article 279A came into force on 12 September 2016.
The rate structure since 22 September 2025
The GST Council replaced four main rates (5%, 12%, 18%, 28%) with two, plus a special rate.
| Rate | Used for | Examples from the Council's list |
|---|---|---|
| Nil | Exempt items | UHT milk, packaged paneer, Indian breads; individual life and health insurance policies |
| 5% | Merit rate | Most packaged foods, soap, toothpaste, bicycles, tractors; hotel rooms up to ₹7,500 a day |
| 18% | Standard rate | Small cars, motorcycles up to 350cc, air conditioners, all TVs, cement, auto parts |
| 40% | Special rate for a select few goods and services | Mid-size and big cars, motorcycles above 350cc, sugary aerated drinks; pan masala and cigarettes from 1 Feb 2026 |
Sources: PIB, Recommendations of the 56th GST Council meeting, 3 Sep 2025, and FAQs on its decisions; All India Radio News, 1 Jan 2026 (tobacco from 1 Feb 2026).
Trainer notes
The table shows the main rates only; check the current CBIC rate schedule before quoting the rate for any specific item. Tobacco and pan masala stayed on the old rates plus compensation cess until the transition date; from 1 February 2026 they moved to 40% GST, and biris to 18%, with a new excise duty or cess alongside. The 40% rate for big cars replaced 28% GST plus a compensation cess.
GST, investors and policyholders
Fund expenses
GST on a scheme's fees is a statutory levy. It is charged to the scheme on actuals and counts in the total expense ratio.
- Nil
Insurance premiums
Individual life and health policies, including term, ULIP, endowment, family floater and senior citizen plans, were moved from 18% to exempt.
Securities
Securities are excluded from the definitions of both goods and services, so transactions in securities are not liable to GST.
Sources: SEBI (Mutual Funds) Regulations, 2026, Reg. 66-67; PIB, 56th GST Council recommendations, 3 Sep 2025 (Annexure III) and FAQs; CBIC, FAQs on GST, 2018 (Q27).
Trainer notes
The insurance exemption applies from 22 September 2025 and covers individual policies and their reinsurance; the release does not extend it to group policies. When a supply is exempt, the supplier cannot claim credit for GST on its own inputs. GST can apply to services around investing, such as a scheme's fees (see the SEBI Regulations), but not to the securities themselves.
Where things stand
Collections are provisional government figures, as reported in the press. They are revised later.
- SEPT 2026 (₹ LAKH CRORE)
- 2.04Gross GST, up 14.7% on Sept 2025 excluding cess. Includes imports.
- APR-SEPT 2026 (₹ LAKH CR)
- 12.46Gross, first half of 2026-27, up 11.6% on a year earlier excluding cess.
- MAIN RATES
- 5% / 18%Merit and standard rates since 22 September 2025, plus 40% for a select few items.
Sources: provisional government GST data, Sept 2026, via Business Today, 1 Oct 2026 (secondary); PIB, 56th GST Council recommendations, 3 Sep 2025.
Trainer notes
Gross collections are before refunds. Net collections were ₹1.77 lakh crore for September 2026, up 18.1%. The growth rates use a year-earlier base without compensation cess; September 2025 was first reported at ₹1.89 lakh crore with cess. Compare a month with the same month a year earlier, not the month before.
If you learnt this from older material
What older decks say
- GST is a reform still to come.
- A single proposed rate, split between the Centre and the States.
- Four main slabs, 5%, 12%, 18% and 28%, plus a cess on sin goods.
What holds now
- In force since 1 July 2017, after the 101st Constitution Amendment of 2016.
- Several rates, each set on the GST Council's recommendation.
- Since 22 September 2025: 5% and 18%, plus a 40% special rate.
Take-away: Rates change on the GST Council's recommendation. Check the date before you quote one.
Sources: CBIC, FAQs on GST, 2018; PIB, 56th GST Council recommendations, 3 Sep 2025; All India Radio News, 1 Jan 2026.
Trainer notes
Material from before 2017 was written before GST began; material from 2017 to 2025 shows the old four-slab structure. The compensation cess was first meant to fund five years of compensation to States, to June 2022. It was then extended to 31 March 2026 to repay loans taken in 2020-21 and 2021-22. For tobacco and pan masala it was replaced from 1 February 2026 by 40% GST plus a new excise duty or cess.
Four things people get wrong
Misconception'Only the shop pays GST.'
What is trueEach registered seller in the chain pays GST on sales, less credit for GST on purchases. The final buyer bears the total in the price.
Misconception'Exempt always means below 5%.'
What is trueAn exempt seller cannot claim credit for GST on its inputs and may pass that cost on. The Council kept tractors at 5% for this reason.
Misconception'Petrol and diesel carry GST.'
What is trueFive petroleum products are outside GST until the GST Council recommends a date. Central excise and State VAT apply instead.
Misconception'All insurance is now GST-free.'
What is trueThe September 2025 exemption covers individual life and health policies. The Council's release does not cover group policies.
Sources: PIB, FAQs on the 56th GST Council decisions, 3 Sep 2025; CBIC, FAQs on GST, 2018 (Q5, Q6).
Trainer notes
On the second point, the Council's own FAQ explains that when goods are fully exempt, suppliers must reverse input credit, which raises their costs. On the fourth, check the current rate before quoting it for any group or commercial policy.
Check yourself
Question 1: A trader buys goods for ₹10,000 plus 18% GST and sells them for ₹12,000 plus 18% GST (assumed figures). How much GST does the trader pay to the government?
Answer: GST on sales ₹2,160, less credit of ₹1,800 = ₹360. That is 18% of the ₹2,000 value added.Question 2: Goods are sold by a seller in Assam to a business in Gujarat. Which GST applies, and who collects it?
Answer: IGST, because the sale crosses a State border. The Centre collects it and it is shared with the States.Question 3: Name the two main GST rates and the special rate in force since 22 September 2025, and one item that is exempt.
Answer: 5% (merit), 18% (standard) and 40% (special, for a select few goods and services). Exempt examples: individual life or health insurance, UHT milk, Indian breads.
Sources and disclaimer
Sources for the figures in this explainer
- GST concept, CGST/SGST/IGST, taxes subsumed, items kept outside, securities: CBIC, Frequently Asked Questions on GST, 3rd edition, 15 Dec 2018.
- GST Council, voting, petroleum products, compensation cess: Constitution, Articles 269A, 279A and 366(12A), as reproduced in 'GST and Co-operative Federalism', GST Council Secretariat.
- Rate structure, examples and insurance exemption from 22 Sep 2025: PIB, Recommendations of the 56th Meeting of the GST Council, 3 Sep 2025, with Annexures, and PIB FAQs on its decisions.
- Tobacco and pan masala from 1 Feb 2026: All India Radio News (newsonair.gov.in), 1 Jan 2026.
- GST collections, September and April-September 2026 (provisional): government data as reported by Business Today, 1 Oct 2026.
- GST within a mutual fund's expense ratio: SEBI (Mutual Funds) Regulations, 2026, Regulations 66-67.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).