Explainers · Banking & economy

How GST Works

What GST is, its types, who decides the rates, and what changed with GST 2.0.

Step by step

1. What is GST?

   Goods and Services Tax is a single tax on the supply of goods and services. It replaced many older indirect taxes, such as excise duty, service tax and VAT, on 1 July 2017.

2. Where is the tax collected?

   GST is destination-based: the tax goes to the State where the goods or services are consumed, not where they are made.

3. Three types

   Within a State, two taxes are charged together: CGST (to the Centre) and SGST (to the State; UTGST in Union Territories). On sales between States, a single IGST is charged by the Centre and later shared with the consuming State.

4. Who decides the rates?

   The GST Council, chaired by the Union Finance Minister, with the Finance Ministers of all States as members. A decision needs three-fourths of the weighted votes; the Centre's vote counts for one-third and the States together for two-thirds.

5. GST 2.0

   From 22 September 2025, most goods and services fall into two slabs, 5% and 18%, with a special 40% rate for luxury and 'sin' goods. Essentials can be exempt (0%).

6. What is still outside GST?

   Alcohol for drinking is outside GST under the Constitution. Petrol, diesel, aviation fuel (ATF), crude oil and natural gas are within GST law, but GST has not yet been applied to them.

Current figures (as of 6 November 2026)

• Gross GST, October 2026₹2,31,290 crore (up 22.9% year on year)
• Net GST, October 2026₹2,03,356 crore (after refunds)

Exam facts

• Constitutional amendment101st Amendment Act, 2016
• In force from1 July 2017 (GST Day)
• GST CouncilArticle 279A
• Power to levy GSTArticle 246A
• IGST on inter-State supplyArticle 269A
• Chair of GST CouncilUnion Finance Minister
• Main slabs since 22 Sep 20255% and 18%; 40% special rate
• IT backboneGST Network (GSTN)