Introduction to GST (2025): One Nation, One Tax
July 1, 2017, changed India's economic history forever. The introduction of the Goods & Services Tax (GST) replaced a chaotic web of 17 different taxes. Now, in 2025, the system has matured, digitizing everything from your corner shop to multinational giants.
2025 Updates You Must Know
- Online Gaming Tax: A flat 28% GST is now applicable on the full face value of bets in online gaming, casinos, and horse racing.
- E-Invoicing: Mandatory for all B2B transactions for businesses with a turnover exceeding ₹5 Crores .
- Strict ITC Claims: Input Tax Credit is now strictly limited to what appears in your GSTR-2B statement. No more provisional claims.
1. Why did we need GST? (The "Tax-on-Tax" Problem)
Before 2017, India's tax system was a mess. There was Central Excise Duty, Service Tax, State VAT, Entry Tax, Luxury Tax, and Entertainment Tax.
The biggest problem was the Cascading Effect (Tax on Tax).
Old System Example (Simplified)
1. Manufacturer makes a shirt for ₹100. Pays 10% Excise = ₹110.
2. Wholesaler buys at ₹110. Adds ₹40 profit = ₹150.
3. Wholesaler pays 10% VAT on ₹150 = ₹15 .
Problem: The VAT of ₹15 is calculated on ₹150, which ALREADY included the ₹10 Excise duty. You were paying tax on tax!
GST removed this barrier by allowing credit at every stage, ensuring tax is levied only on Value Addition .
2. The 3 Pillars: CGST, SGST, and IGST
India is a federal country (Centre + States). Both need revenue. So, GST is split into three components.
Goes to the Central Govt (Modi Govt).
Goes to the State Govt (e.g., Telangana/AP Govt).
Collected by Centre on Inter-state sales, then shared.
Scenario A: Sale within the SAME state (Intra-State)
If a dealer in Hyderabad sells a phone to a customer in Warangal (both Telangana):
- Total GST Rate: 18%
- CGST (9%): Goes to Centre.
- SGST (9%): Goes to Telangana State.
Scenario B: Sale to DIFFERENT state (Inter-State)
If a dealer in Mumbai (Maharashtra) sells a phone to a customer in Hyderabad (Telangana):
- Total GST Rate: 18%
- IGST (18%): Entire amount collected by Centre. Later, the Centre gives the State's share to the Destination State (Telangana).
3. GST Slabs (2025 Reforms)
The government has simplified the tax structure into three primary slabs (plus exempt goods) to reduce complexity.
| Rate | Category | Examples |
|---|---|---|
| 0% | Exempt (Basic Necessities) | Fresh Milk, Curd, Eggs, Unbranded Food Grains, Fresh Vegetables. |
| 5% | Merit Rate (Essentials) | Packaged Food, Medicines, Footwear/Apparel (< ₹2,500). |
| 18% | Standard Rate (Most Items) | Electronics (TVs, Fridges), Smartphones, Small Cars, Bikes, Restaurant Services. |
| 40% | Demerit Rate (Luxury/Sin) | Luxury Cars (SUVs), High-end Motorcycles, Aerated Drinks, Tobacco, Pan Masala. |
*Note: Online Money Gaming is taxed separately at a flat 28% on face value.
4. Input Tax Credit (ITC): The Soul of GST
ITC basically means: "Tax paid on inputs can be subtracted from tax to be paid on output."
Example: You are a shopkeeper.
- You buy a laptop for your shop for ₹50,000. You pay 18% GST = ₹9,000 to the seller.
- This ₹9,000 sits in your "Electronic Credit Ledger" (like a digital wallet).
- Now, you sell goods worth ₹1,00,000 to customers. You collect 18% GST = ₹18,000 .
- Tax you pay to Govt = Output Tax (₹18,000) - Input Tax Credit (₹9,000) = ₹9,000 .
2025 Rule: You can ONLY claim this credit if your supplier has filed their return (GSTR-1) and it appears in your GSTR-2B. If they cheat, you lose the credit!
5. Composition Scheme (For Small Players)
For small businesses with turnover up to ₹1.5 Crores, GST compliance is hard. They can opt for the Composition Scheme .
- Benefit: File return only once a quarter (CMP-08). Simple records.
- Rate: Pay flat 1% (Traders) or 6% (Service Providers) on turnover.
- Drawback: You CANNOT collect tax from customers. You CANNOT claim Input Tax Credit.
Frequently Asked Questions
Is petrol and diesel covered under GST? ▼
No. Even in 2025, Petroleum products (Petrol, Diesel, ATF) are outside the ambit of GST. They are still taxed under the old system of Excise Duty (Central) and VAT (State), which is why their prices vary significantly between states.
What is the GST rate on Online Gaming in 2025? ▼
Following the major amendment, a flat 28% GST is levied on the 'full face value' of the bets placed in online money gaming, regardless of whether it is a game of skill or chance.
Do I need GST registration if my turnover is low? ▼
Generally, businesses with a turnover below ₹40 Lakhs (Goods) or ₹20 Lakhs (Services) are exempt. However, if you sell online (e-commerce) or sell inter-state, mandatory registration is required irrespective of turnover.