GST Explained: Slabs, CGST vs SGST, and Inclusive vs Exclusive Pricing
The Goods and Services Tax replaced a patchwork of indirect taxes with a single nationwide system. For small business owners and freelancers, the mechanics still cause daily confusion — especially the difference between adding GST to a price and extracting it from one.
The Main GST Slabs
Most goods and services fall into four slabs: 5% (essential items, transport), 12% (processed foods, some electronics), 18% (the default for most services including software, consulting, and restaurants), and 28% (luxury goods, automobiles). A small set of items is zero-rated or exempt.
Knowing your correct slab matters because charging the wrong rate creates liability either way: undercharge and you owe the difference from your own pocket; overcharge and you face compliance issues and unhappy customers.
CGST, SGST, and IGST
For a sale within one state, the GST amount splits equally into CGST (central government) and SGST (state government) — an 18% invoice shows 9% + 9%. For inter-state sales, the entire amount is charged as IGST instead. The customer pays the same total either way; only the government-side accounting differs.
Your invoices must show this split correctly. Accounting software handles it automatically once you record the place of supply, but manual invoicing is a common source of errors.
Inclusive vs Exclusive: The Most Common Mistake
Adding 18% GST to a 1,000 base price is easy: 1,000 × 1.18 = 1,180. The trap is the reverse. If a customer pays 1,180 all-inclusive, the GST is not 18% of 1,180 (212.40). The correct extraction is 1,180 × 18 ÷ 118 = 180, leaving a base of 1,000.
Freelancers quoting all-inclusive prices routinely lose money to this error, because they remit more tax than they collected. Always compute the base as inclusive price ÷ (1 + rate) before filing.
Input Tax Credit in One Paragraph
Registered businesses can offset the GST they paid on purchases against the GST they collected on sales, remitting only the difference. This input tax credit mechanism is why GST is a value-added tax: each link in the chain is taxed only on the value it adds. Keep every purchase invoice — credits require documentation.