GST in India — An Introduction
AI-assisted · review in progress · last updated 25 July 2026 · jump to quick revision
In 30 seconds
- GST is a value-added tax on SUPPLY — not manufacture or sale — with a continuous ITC chain that removes cascading; only the final consumer bears the tax.
- Genesis: mooted in 2000, the 122nd Amendment Bill (2014) became the 101st Constitution Amendment Act on 08.09.2016, and GST went live on 01.07.2017 (J&K from 08.07.2017).
- India runs a Dual GST because of its federal structure: CGST + SGST/UTGST on intra-State supplies, IGST (≈ CGST + SGST) on inter-State supplies.
- Alcoholic liquor for human consumption and real estate are permanently outside GST; five petroleum products wait for a Council-notified date; tobacco and opium suffer GST plus excise.
- The constitutional core: Articles 246A (power to legislate GST), 269A (IGST), 279A (GST Council — quorum 1/2, voting 3/4 weighted) and 366(12A) (definition of GST).
Based on GST law as on 30.04.2025 (May 2026 exams onwards). Section numbers are CGST Act unless stated.
How the chapter fits together
This is the foundation chapter: why GST exists, how it arrived, what it replaced, and the constitutional machinery that holds it up. Everything later in the paper builds on these seven blocks:
- Taxation overview — a welfare State needs revenue; tax is an enforced contribution, direct or indirect →
- Genesis — 2000 committee to launch on 01.07.2017 →
- Concept — VAT on supply, continuous ITC chain, no cascading →
- Need — the deficiencies of the old regime that GST cures →
- Framework — Dual GST: CGST/SGST/UTGST/IGST, thresholds, portals →
- Benefits — economy, simplified structure, easy compliance, trade & industry →
- Constitution — the 101st Amendment and its key Articles.
The paradigm shift to GST happened on 01.07.2017 — but Customs was not subsumed and continues alongside.
Taxation basics and the concept of GST
A welfare State funds itself through tax — a pecuniary burden, an enforced contribution imposed by legislative authority. It is never voluntary and never a donation. Taxes split two ways: direct taxes (imposed on and paid by the same person, non-shiftable — e.g. income tax, where incidence and impact fall on the same person) and indirect taxes.
Indirect tax
Liability to pay falls on the supplier, but the incidence is passed on to the consumer — shiftable, and regressive because it is not based on ability to pay.
GST [Art 366(12A)]
A value-added tax on supply of goods or services — except alcoholic liquor for human consumption. A continuous chain of input tax credit runs through the supply chain, so there is no cascading and only the final consumer bears the tax.
The single biggest conceptual trap: GST is a tax on SUPPLY — not on manufacture, not on sale, not on rendering of services. It is also a destination-based tax: revenue accrues to the consuming State, the exact opposite of the old origin-based CST.
Why the old regime had to go — its deficiencies, each cured by GST:
- Double taxation of transactions involving both goods and services.
- CENVAT stopped at the manufacture stage — the credit chain broke there.
- No CENVAT–VAT cross set-off — central and State credits could not meet.
- Luxury Tax and Entertainment Tax sat outside VAT.
- VAT and service tax were never integrated.
- CST was origin-based and non-VATable — pure cascading.
Genesis — from 2000 to 1 July 2017
France implemented the world’s first VAT/GST in 1954; today 160+ countries levy it, most under a unified model. India — like Brazil and Canada — adopted a Dual GST because of its federal structure.
Mnemonic (genesis order): “PM Task-Forced a Budget, Bill Passed, Act Assented, GST Grew” → 2000 (PM) → 2003–04 (Task Force) → 2006–07 (Budget) → 2014 (Bill) → 2016 (Assent/Act) → 2017 (launch).
| Date/Period | Event |
|---|---|
| 1954 | France — first country to implement VAT/GST |
| 2000 | PM mooted GST; committee constituted |
| 2003 | Task Force on Fiscal Responsibility & Budget Management formed |
| 2004 | Task Force recommended a fully integrated GST |
| 2006–07 Budget | FM Chidambaram announced GST, target 01.04.2010 (missed) |
| 19.12.2014 | Constitution (122nd Amendment) Bill, 2014 tabled |
| 06.05.2015 | Lok Sabha passed the Bill |
| 03.08.2016 | Rajya Sabha passed the Bill |
| 08.09.2016 | President’s assent → Constitution (101st Amendment) Act, 2016 |
| 12.09.2016 | Art 279A comes into force |
| 15.09.2016 | GST Council constituted by the President |
| 27.03.2017 | CGST/IGST/UTGST/Compensation Bills introduced in Lok Sabha |
| 29.03.2017 | Lok Sabha passed these Bills |
| 12.04.2017 | President’s assent — Central GST Acts enacted |
| 01.07.2017 | GST launched in India |
| 08.07.2017 | GST extended to Jammu & Kashmir |
| 30.06.2022 | Original 5-year Compensation Cess period end (initial) |
| 31.03.2026 | Compensation Cess levy/collection extended till this date |
Framework of Dual GST
Under Dual GST, the Centre and the States levy tax concurrently on the same supply chain. Four levies share the field:
| Tax | Levied by | On | Act / notes |
|---|---|---|---|
| CGST | Centre | Intra-State supply | CGST Act, 2017 — a single central Act |
| SGST | State or UT with Legislature | Intra-State supply | State-wise Acts, uniform “as far as feasible” — Delhi, J&K, Puducherry have their own |
| UTGST | UT without Legislature | Intra-State supply | UTGST Act, 2017 — A&N Islands, Lakshadweep, Ladakh, DNH&DD, Chandigarh (5 UTs) |
| IGST | Centre | Inter-State supply | ≈ CGST + SGST/UTGST — not a third separate tax |
Intra-State vs inter-State supply
Intra-State: location of supplier and place of supply are in the same State/UT. Inter-State: supplier and place of supply in two different States, two different UTs, or a State and a UT — it covers UT–UT and State–UT, not just State–State.
IGST [Art 269A]
Levied and collected by the Centre on inter-State supply, then apportioned — approximately equal to CGST + SGST/UTGST, so it is not a third or additional tax.
The working parts of the framework:
- Classification: HSN codes for goods (linked to the Customs Tariff Act, 1975); SAC codes for services.
- Composition Scheme: a simplified payment mechanism for small businesses making intra-State supplies only — it is an alternative method of paying tax, not an exemption.
- Aggregate turnover / threshold: FY-wise and State/UT-specific — the limit is not a flat ₹20L/₹40L everywhere:
| Threshold | States/UTs |
|---|---|
| ₹10 lakh | Manipur, Mizoram, Nagaland, Tripura |
| ₹20 lakh (goods + services) | Arunachal Pradesh, Meghalaya, Sikkim, Uttarakhand, Puducherry, Telangana |
| ₹20 lakh (services) / ₹40 lakh (goods only, intra-State) | All other States |
- Seamless ITC: credit flows through the chain. Utilisation order — IGST credit → IGST, then CGST & SGST/UTGST in any order and proportion; CGST credit → CGST then IGST; SGST/UTGST credit → SGST/UTGST then IGST (and only after CGST credit is fully exhausted). CGST ↔ SGST cross-utilisation is barred.
- The IT ecosystem: GSTN runs the common portal gst.gov.in (a wholly-owned Government company); the e-way bill portal ewaybillgst.gov.in is separate and managed by NIC; the IRP (also NIC) is the e-invoice upload site — e-invoicing is mandatory where PAN-based aggregate turnover exceeds ₹5 crore in any FY from 2017-18 onwards. GSPs (GSTN-selected IT/fintech companies) are an optional access channel connecting directly to the GST system; ASPs link taxpayers to GSPs and do not connect to GSTN directly.
- Compensation Cess (GST Compensation Cess Act, 2017): levied on luxury/demerit goods — pan masala, tobacco, aerated water, motor cars. Levy/collection stands extended to 31.03.2026; compensation to a State runs 5 years from that State’s SGST Act commencement.
- Benefits: a unified national market boosting Make in India and investment; a simplified tax structure; easy IT-driven compliance; gains for trade and industry.
What stays outside GST
| Item | Treatment |
|---|---|
| Alcoholic liquor for human consumption | Outside GST (constitutionally, via Art 366(12A)) — State excise on manufacture; CST/VAT on inter/intra-State sale |
| 5 petroleum products — crude, diesel, petrol, ATF, natural gas | Within GST but not presently levied — GST applies from a date notified on Council recommendation; till then central excise + CST/VAT |
| Tobacco | Within GST + Union retains power to levy central excise (double levy) |
| Opium, Indian hemp, narcotics | Within GST + States retain power to levy State excise (double levy) |
| Real estate (sale/purchase of immovable property) | Outside GST entirely |
| Basic Customs Duty (BCD) | Not subsumed — continues post-GST (CVD and Special CVD were subsumed) |
| Entertainment Tax levied by local bodies | Not subsumed (the local-body levy is excluded) |
Remember the split: alcohol and real estate are permanent exclusions; the five petroleum products are a temporary exclusion pending a Council-recommended notification date; tobacco and opium are inside GST but carry an extra excise levy.
Constitutional foundations and the GST Council
The Constitution of India: Preamble + 25 Parts + 448 Articles + 12 Schedules. Three articles anchor all taxation:
- Art 265 — no tax shall be levied or collected except by authority of law (legislative competence; no arbitrary tax).
- Art 245 — Parliament may legislate for the whole or part of India, State Legislatures for their State; a Parliamentary law is not invalid merely for extra-territorial operation.
- Art 246 — distribution of subjects per the Seventh Schedule (Union/State/Concurrent Lists; Entry 82 = income tax, Entry 83 = customs). A law inconsistent with the Constitution is ultra vires — illegal and void.
The 101st Constitution Amendment Act then rewired the fiscal map:
| Article | Topic | Crux |
|---|---|---|
| 246A | GST law-making power | Parliament + States concurrent; Parliament exclusive for inter-State — notwithstanding Arts 246 & 254 |
| 248 (amended) | Residuary power | Parliament’s residuary power now subject to Art 246A |
| 249 (amended) | National interest | Parliament may legislate on State List incl. GST if Rajya Sabha resolves by ≥2/3 majority |
| 250 (amended) | Emergency | Parliament may legislate on State List incl. GST during a Proclamation of Emergency |
| 268 (amended) | Centre levies, States collect | Stamp duty; words for medicinal/toilet-preparation excise omitted — now in GST |
| 268A | Service tax (erstwhile) | Omitted entirely — was never notified anyway |
| 269A | Inter-State GST (IGST) | Levied/collected by the Government of India, apportioned per GST Council recommendation; apportioned amounts do not form part of the Consolidated Fund |
| 270 (amended) | Centre–State distribution | Presidential order after Finance Commission recommendation |
| 271 (amended) | Surcharge power | GST excluded from the surcharge purview |
| 366(12A) | Definition — “GST” | Tax on supply of goods/services, except alcoholic liquor for human consumption |
| 366(26A) | Definition — “Services” | Anything other than goods (residual) |
| 366(12) | Definition — “Goods” | Includes all materials, commodities, articles (inclusive) |
| 286 (amended) | Restriction on State tax | No tax on supply outside the State or in import/export; “supply” substituted; clause (3) — declared goods — omitted |
| 279A | GST Council | President constitutes; in force 12.09.2016; constituted 15.09.2016 |
| 368 (amended) | Amendment procedure | Now covers Art 279A too — ≥2/3 in each House + ratification by ≥1/2 the States |
Mnemonic — “CRIS-Q” for the articles to nail: 246A (power), 269A (IGST), 279A (Council), 366(12A) (definition), 368 (amendment procedure).
GST Council [Art 279A]
A joint Centre–State forum constituted by the President. It is recommendatory only — Parliament and the State Legislatures actually enact GST law.
- Chairperson — the Union Finance Minister; Vice-Chairperson — chosen by the State Members from among themselves.
- Quorum — 1/2 of the total Members.
- Decisions — ≥3/4 of the weighted votes of Members present and voting: Centre’s vote weight = 1/3, all States together = 2/3.
- Validity — a vacancy, defect in constitution/appointment, or procedural irregularity not affecting the merits does not invalidate the Council’s proceedings.
- Special Category States — 11 States get special Council provisions under Art 279A(4)(g): Arunachal Pradesh, Assam, J&K, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, Uttarakhand. Mnemonic: “AAJ MMM NST HU”.
One Consolidated Fund exception to hold on to: all revenue and loans of the Government normally flow into the Consolidated Fund of India/State — but IGST amounts apportioned/settled under Art 269A (including SGST–IGST cross-transfers) do not form part of it.
- Calling tobacco or opium “outside GST” — both are within GST with an additional excise: Union excise on tobacco, State excise on opium/narcotics.
- Mixing up the two exclusions — alcoholic liquor (human consumption) is permanently outside GST; the 5 petroleum products are inside but temporarily un-notified.
- Confusing SGST with UTGST — the test is a Legislature: Delhi, J&K, Puducherry levy SGST; A&N Islands, Lakshadweep, Ladakh, DNH&DD, Chandigarh levy UTGST.
- Saying customs was subsumed — only CVD and Special CVD went into GST; BCD continues.
- Swapping the Council’s quorum and voting rules — quorum = 1/2 of total Members; decisions need ≥3/4 weighted votes of those present and voting (Centre 1/3, States 2/3).
- Treating gst.gov.in and ewaybillgst.gov.in as one portal — the e-way bill portal is separate and NIC-managed, as is the IRP.
- Conflating the 11 Special Category States (Art 279A(4)(g)) with the registration-threshold State groupings (₹10L/₹20L/₹40L) — different lists.
- Thinking the GST Council enacts law — it is recommendatory only; Parliament and State Legislatures legislate.
Quick revision cards
GST is a tax on what?
Key launch dates?
122nd Amendment Bill journey?
GST Council numbers?
What is outside GST?
Which customs duty survives GST?
IGST equals?
Constitution structure?
Registration thresholds?
E-invoicing is mandatory when?
Compensation Cess runs till?
First VAT country and India's model?