The Goods and Services Tax (GST) is a comprehensive, multi-stage, and destination-based indirect tax concept introduced in India, which replaced a multitude of central and state indirect taxes like Central Excise Duty, Service Tax, and State Value Added Tax (VAT). The GST regime was implemented nationwide on July 1, 2017, following the enactment of The Constitution (One Hundred and First Amendment) Act, 2016. The primary problem it solved was the cascading effect of taxes, or "tax on tax," which occurred under the previous fragmented system where tax was levied at multiple stages without seamless credit for taxes paid earlier.
The mechanism operates on a dual model, meaning both the Union and State governments levy tax on the supply of goods and services. For transactions within a single state (intra-state), the tax is split into Central GST (CGST), levied by the Centre under the CGST Act, 2017, and State GST (SGST), levied by the State under the respective SGST Acts. For transactions between states (inter-state) and imports, the Integrated GST (IGST) is levied by the Centre under the IGST Act, 2017, which is then apportioned between the Centre and the consuming State. The core provision is the Input Tax Credit (ITC) mechanism, which allows businesses to claim credit for taxes paid on inputs, ensuring that the tax is ultimately borne only by the final consumer on the value addition at each stage.
The GST framework is intrinsically connected to the GST Council, a constitutional body established under Article 279A. The Council, chaired by the Union Finance Minister and comprising state finance ministers, institutionalizes cooperative federalism by making recommendations on tax rates, exemptions, and model laws. A key judicial interpretation of this body is the Supreme Court's ruling in Union of India v. Mohit Minerals Pvt. Ltd. (2022), which held that the GST Council's recommendations are not binding on the central or state governments, upholding the principle of cooperative federalism.
The system has undergone recent changes, notably a significant rate rationalization effective September 22, 2025, which reduced the number of GST slabs from six to two primary rates: 5% and 18%. While this simplified the rate structure, the fundamental dual levy and the ITC mechanism, along with the constitutional authority of the GST Council under Article 279A, have stayed the same. However, certain items like alcoholic liquor for human consumption, petroleum crude, and high-speed diesel remain outside the GST purview and are taxed separately by state governments.