GST (Goods and Services Tax) replaced over a dozen indirect taxes in India on 1 July 2017. Understanding how to calculate GST is essential for business owners, accountants, and consumers alike. This guide covers every scenario you will encounter.
The four GST slabs
India uses four primary GST rate slabs:
- 5% — Essential goods: packaged food, household necessities, economy hotel rooms (under ₹1,000/night), economy class air travel
- 12% — Processed foods, business class air travel, non-AC restaurants, mobile phones
- 18% — Most services (IT, consulting, telecom), restaurants with AC, most manufactured goods, financial services
- 28% — Luxury goods: cars, motorcycles above 350cc, aerated drinks, cigarettes, 5-star hotels
There is also a 0% rate for exempted goods (fresh vegetables, milk, eggs, books) and a 3% rate for gold and jewellery.
How to calculate GST — the formula
Adding GST to a base price:
GST Amount = Base Price × GST Rate / 100
Final Price = Base Price + GST Amount
Example: Product costs ₹10,000 before GST. GST rate = 18%.
GST = ₹10,000 × 18/100 = ₹1,800
Final price = ₹10,000 + ₹1,800 = ₹11,800
Reverse GST calculation (when price includes GST):
Base Price = Inclusive Price × 100 / (100 + GST Rate)
GST Amount = Inclusive Price − Base Price
Example: You paid ₹11,800 inclusive of 18% GST.
Base = ₹11,800 × 100/118 = ₹10,000
GST = ₹11,800 − ₹10,000 = ₹1,800
CGST, SGST, and IGST — the split
When a transaction is intrastate (buyer and seller in the same state), GST splits equally between Central GST (CGST) and State GST (SGST). For an 18% GST transaction: CGST = 9%, SGST = 9%.
When a transaction is interstate (buyer and seller in different states), the entire GST is collected as Integrated GST (IGST) by the central government. For 18% GST: IGST = 18%.
Common GST calculation mistakes
- Calculating GST on an already GST-inclusive price (double counting)
- Using the wrong slab — many items changed slabs in the 2023 and 2024 GST Council meetings
- Forgetting the CGST/SGST split when issuing invoices
- Not charging GST on services because "it is just a small consultancy"
Use the free GST Calculator
Rather than calculating manually every time, use our free GST Calculator which handles all four slabs, intrastate/interstate split, and reverse calculations instantly.
Input Tax Credit (ITC) — the concept businesses get wrong
ITC lets a registered business deduct the GST it paid on purchases (inputs) from the GST it owes on sales (output). This prevents the same value from being taxed multiple times as goods move through a supply chain. For example, if you buy raw materials for ₹1,00,000 + 18% GST (₹18,000) and sell the finished product for ₹2,00,000 + 18% GST (₹36,000), you don't pay ₹36,000 to the government — you pay ₹36,000 − ₹18,000 = ₹18,000, because you already paid ₹18,000 in GST on your inputs.
ITC cannot be claimed on every purchase, though — common exclusions include motor vehicles (with some exceptions), food and beverages, and employee-related expenses like life or health insurance unless mandated by law. A mismatch between what a supplier reports and what you claim is one of the most common reasons ITC gets rejected during a GST audit.
Composition scheme — an alternative for small businesses
Businesses with annual turnover under ₹1.5 crore (₹75 lakh for some special category states) can opt for the GST Composition Scheme instead of regular GST. Under composition, you pay a flat, low rate on turnover (typically 1% for traders, 5% for restaurants) instead of standard slab rates, but you cannot claim ITC and cannot charge GST separately on invoices. This suits small traders and restaurants with simple operations, but it's a poor fit for B2B businesses whose customers need ITC to be passed through.
GST on inter-state e-commerce — a common confusion
Many small online sellers assume GST rules for e-commerce are simpler because a platform like Amazon or Flipkart "handles it." In reality, sellers on e-commerce platforms must be GST-registered regardless of turnover (the usual ₹40 lakh/₹20 lakh registration threshold doesn't apply to e-commerce sellers), and platforms deduct Tax Collected at Source (TCS) at 1% on the net value of taxable supplies, which the seller can then claim as credit against their GST liability.
Frequently asked questions
Do I need to register for GST if my turnover is below ₹40 lakh? Generally no for goods (₹20 lakh for services, lower thresholds in special category states), unless you sell inter-state, sell via e-commerce, or fall under mandatory registration categories regardless of turnover.
Can GST rates change without notice? Rate changes are announced by the GST Council (which meets periodically) and typically take effect from a specified future date, not retroactively — but slabs for specific goods do get revised every few Council meetings, so it's worth checking current rates for high-value purchases.