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A destination-based indirect tax on the supply of goods and services that replaced most central and state indirect taxes from 1 July 2017.
The Goods and Services Tax is a comprehensive, destination-based indirect tax levied on the supply of goods and services in India. It came into effect on 1 July 2017, subsuming most central and state indirect taxes — excise duty, service tax, value added tax, central sales tax, octroi, entry tax, and various cesses and surcharges — into a single levy. It was made constitutionally possible by the Constitution (One Hundred and First Amendment) Act, 2016, which inserted Article 246A, Article 269A and Article 279A. India follows a dual GST model: for a transaction within a state, the Centre and the state each levy their own component, while inter-state supplies attract a single integrated tax collected by the Centre and apportioned to the consuming state.
Type: PolicyDestination-based — the tax accrues to the state where the goods or services are consumed, not where they are produced
Dual model — CGST (Central GST) and SGST (State GST) on intra-state supply; UTGST in Union Territories; IGST on inter-state supply and imports
Input tax credit — a business can set off tax paid on its inputs against tax on its output, so the tax falls only on value added at each stage
Governed by the GST Council, a constitutional body under Article 279A that recommends rates, exemptions and rules
Certain items remain outside GST — petroleum crude, petrol, high speed diesel, natural gas and aviation turbine fuel, plus alcohol for human consumption, which is constitutionally excluded
A compensation cess is levied on select demerit and luxury goods over and above the applicable rate
Administered through the GST Network (GSTN), the technology backbone for registration, returns and payments
Frequency: One of the most frequently asked economy topics across UPSC Prelims, SSC and all banking examinations.
The mechanism that distinguishes GST from the taxes it replaced is input tax credit, which removes the cascading of tax upon tax.
A registered business charges GST on its outward supply of goods or services
It has already paid GST on the inputs it purchased — raw materials, components, services
It claims input tax credit for that tax already paid
It remits to the government only the difference between tax collected on outputs and tax paid on inputs
The effect is that tax is borne only on the value added at each stage, and the final consumer bears the total
For inter-state supply, IGST is collected by the Centre and apportioned to the consuming state, preserving the destination principle
Under the earlier system, a manufacturer paid excise duty, the wholesaler paid VAT on a price that already included that excise duty, and the retailer paid tax again on a price that included both. Tax was being charged on tax — cascading — which inflated the final price without any of it reaching the government as revenue on real value. Input tax credit breaks this chain: at each stage the seller deducts the tax already paid on inputs, so only the incremental value gets taxed. This is also why GST created a strong incentive for businesses to buy from registered suppliers, since credit can only be claimed on tax that was actually recorded in the system.
Paying rent on a room, then paying rent again on the whole flat including that room — GST charges you only for the space you actually added.
GST took more than a decade and a half to move from proposal to law, because it required states to surrender independent taxing powers.
A committee is set up to design a GST model for India
GST is proposed in the Union Budget with an initial target date of 2010
The Constitution (101st Amendment) Act is passed, inserting Articles 246A, 269A and 279A
GST is launched, subsuming most central and state indirect taxes
The rate structure is rationalised into a principal two-rate structure of 5% and 18%, with a higher rate retained for select demerit goods
GST Council
Constitutional body under Article 279A recommending rates, exemptions, thresholds and rules
GST Network (GSTN)
The technology platform handling registration, return filing, payments and data reconciliation
Central Board of Indirect Taxes and Customs (CBIC)
Administers central GST, customs and other indirect taxes
GST is the clearest working example of cooperative federalism in Indian fiscal policy. States gave up the independent power to tax goods within their territory, and the Centre gave up exclusive control over the tax base, in exchange for a shared institution — the GST Council — in which neither side can act alone. The voting arithmetic makes this explicit: the Centre's one-third weightage means it cannot pass a proposal without substantial state support, while the three-fourths threshold means no group of states can override the Centre. The economic case was the creation of a single national market: before GST, a truck crossing state borders faced entry taxes and checkposts, and the same product carried different tax burdens in different states. Whether GST has delivered the promised simplicity remains debated — multiple rates, compliance load on small businesses and disputes over compensation to states are the recurring criticisms.
Launched 1 July 2017 under the 101st Constitutional Amendment Act, 2016
Destination-based, dual model: CGST + SGST intra-state, IGST inter-state
Article 246A, 269A, 279A are the three provisions to remember
GST Council: chaired by Union Finance Minister; Centre one-third, states two-thirds weightage; three-fourths majority to decide
Outside GST: five petroleum products plus alcohol for human consumption
Input tax credit removes cascading of tax on tax
Rates rationalised in September 2025 to a principal 5% and 18% structure
GST came into effect on 1 July 2017. It was made possible by the Constitution (101st Amendment) Act, 2016, which inserted Articles 246A, 269A and 279A.
Five petroleum products — crude oil, petrol, high speed diesel, natural gas and aviation turbine fuel — remain outside GST for now, and alcohol for human consumption is constitutionally excluded. This is why states still levy VAT on fuel.
The Union Finance Minister chairs the GST Council. Its members include the Union Minister of State for Finance and the finance ministers of all states.
Decisions need a three-fourths majority of the weighted votes of members present and voting. The Centre holds one-third of the weightage and all states together hold two-thirds, so neither side can decide alone.
Input tax credit lets a business deduct the GST it has already paid on its purchases from the GST it owes on its sales. This ensures tax is levied only on the value added at each stage, eliminating tax-on-tax cascading.