Adding and removing GST without getting it backwards
Why extracting tax from an inclusive price is a division rather than a subtraction, how the CGST and SGST split works, and the invoice rules that decide which one you charge.
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In short
- Removing GST is a division, not a subtraction. A ₹11,800 inclusive price contains ₹1,800 of tax, not ₹2,124.
- The total is identical whether it splits into CGST plus SGST or a single IGST. Only the destination differs.
- Which one applies depends on the place of supply, not on where you or your customer are registered.
- Input tax credit means a business pays GST only on the value it adds, which is why the tax is described as a value-added one.
- 18% covers most goods and services, but the rate follows the HSN or SAC code and is a legal classification rather than a judgement call.
Goods and Services Tax replaced a tangle of central and state levies in July 2017 with a single destination-based tax. Most of the arithmetic is simple. The two parts people get wrong are extracting tax from a price that already includes it, and deciding which of the three components to charge.
Adding GST
Multiply the base amount by the rate and add it.
At 18% on ₹10,000: 10,000 × 0.18 = 1,800, so the invoice total is ₹11,800.
Nothing here is subtle. The subtlety is entirely in the reverse.
Removing GST — a division, not a subtraction
Given a total that already includes tax, the base is the total divided by one plus the rate:
base = total ÷ (1 + rate)
At 18% on an inclusive ₹11,800: 11,800 ÷ 1.18 = 10,000, so the tax is ₹1,800.
The instinct is to take 18% off ₹11,800, which gives ₹2,124 of tax and a base of ₹9,676. That is wrong by ₹324 on a single invoice, and it is wrong in the same direction every time — always overstating the tax and understating the base.
The reason is that the 18% was charged on ₹10,000, not on ₹11,800. Percentages apply to a base, and reversing one means finding the base rather than applying the same percentage to a bigger number.
The error grows with the rate:
| Rate | Inclusive price | Correct tax | Naive subtraction | Overstated by |
|---|---|---|---|---|
| 5% | ₹10,500 | ₹500 | ₹525 | ₹25 |
| 18% | ₹11,800 | ₹1,800 | ₹2,124 | ₹324 |
| 40% | ₹14,000 | ₹4,000 | ₹5,600 | ₹1,600 |
Anyone filing returns from inclusive prices and subtracting will overstate their output tax, which means paying more than they owe.
CGST, SGST and IGST
GST arrives in three components, and which you charge depends on where the supply goes.
Supply within a state splits equally into CGST (central) and SGST (state). An 18% rate becomes 9% CGST plus 9% SGST.
Supply between states is a single IGST at the full 18%, collected by the centre and later apportioned to the destination state.
The total is identical either way. A customer paying ₹11,800 pays ₹11,800 whether it splits into ₹900 plus ₹900 or arrives as ₹1,800 of IGST. The split matters to the exchequer and to how you claim credit, not to the price.
Which applies is decided by the place of supply, not by where either party is registered. For goods, the place of supply is generally where the goods are delivered. For most services it is the recipient's location. A Delhi consultant serving a Delhi client charges CGST plus SGST; the same consultant serving a Mumbai client charges IGST — from the same desk.
Union territories without a legislature use UTGST in place of SGST, which behaves identically.
Input tax credit, and why it is a value-added tax
A registered business does not bear the GST it pays on purchases. It claims that back as input tax credit and pays the government only the difference.
Follow a table through the chain at 18%:
| Stage | Buys for | Sells for | GST collected | Credit claimed | Paid to government |
|---|---|---|---|---|---|
| Timber merchant | — | ₹1,000 | ₹180 | ₹0 | ₹180 |
| Furniture maker | ₹1,000 | ₹3,000 | ₹540 | ₹180 | ₹360 |
| Retailer | ₹3,000 | ₹5,000 | ₹900 | ₹540 | ₹360 |
| Total | ₹900 |
The government collects ₹900, which is exactly 18% of the final ₹5,000 price. Each business paid tax only on the value it added. That is what makes it a value-added tax rather than a cascading one — under the old regime, tax was charged on tax at every stage and the final price carried far more than the headline rate.
Credit depends on your supplier actually filing their return. If they collect GST from you and do not deposit it, your credit can be denied — which is why GST compliance ratings matter commercially and why large buyers check them.
The rate slabs
The slabs changed on 22 September 2025, and it was the largest restructuring since GST began. The 56th GST Council meeting abolished the 12% and 28% slabs outright: most goods at 12% moved down to 5%, most at 28% moved down to 18%, and a new 40% rate was created for luxury and sin goods.
| Rate | Typical coverage |
|---|---|
| 0% | Fresh produce, milk, unbranded flour and grain, books, most medicines |
| 0.25% | Rough and industrial diamonds |
| 3% | Gold, silver, jewellery |
| 5% | Merit rate — packaged food, household essentials, transport, economy air travel |
| 18% | Standard rate — most goods and services, telecom, electronics, small cars |
| 40% | Demerit rate — luxury vehicles, aerated drinks, betting and gaming |
Two things about that table are easy to get wrong.
28% has not vanished entirely. Pan masala and tobacco stay at 28% plus compensation cess until the cess's outstanding loan obligations are discharged, at which point they move to 40%. For everything else, an invoice raised today at 28% is wrong.
The move was mostly downward. A product that was 12% before the change is now 5% or 18%, and one that was 28% is now 18% or 40%. If you are reconciling old invoices against new ones, the rate difference is expected and is not an error in either.
The rate follows the HSN code for goods or the SAC code for services, not a general category. This is a legal classification, not an opinion — the same-looking product can attract different rates depending on packaging, branding or intended use. Get it from the official rate finder before invoicing, because a wrong rate is the invoice error that costs most to fix.
Registration
Registration becomes compulsory once turnover crosses:
- ₹40 lakh for goods in most states, ₹20 lakh in special-category states
- ₹20 lakh for services in most states, ₹10 lakh in special-category states
It is compulsory regardless of turnover for inter-state supply, most e-commerce sellers, and anyone liable under reverse charge.
Below the threshold, registration is voluntary — and often worth it. If your customers are themselves registered businesses, GST costs them nothing because they claim it back, while your own input credit becomes claimable. If you sell to consumers, registration adds to your price without any offsetting benefit to them.
The composition scheme offers a lower flat rate for small businesses up to ₹1.5 crore of turnover, but it forbids claiming input credit and forbids issuing tax invoices that let your customer claim it either.
Reverse charge
Normally the seller collects GST and pays it. Under reverse charge the buyer pays it directly to the government instead, and the seller's invoice carries no tax at all.
It applies to a specific list — goods transport agency services, legal services from an advocate, sponsorship, director's fees, and any purchase from an unregistered supplier in certain categories. The buyer must be registered, must pay the tax in cash rather than by adjusting existing credit, and can then claim it back as input credit in the same or a later period.
The practical effect is that a registered business receiving a lawyer's bill for ₹1,00,000 pays the lawyer ₹1,00,000 and the government ₹18,000, then claims that ₹18,000 back. The net cost is unchanged; the paperwork is not.
E-invoicing and the ₹5 crore threshold
Businesses above ₹5 crore of annual turnover must generate invoices through the government portal, which returns an invoice reference number and a signed QR code. An invoice without them is not a valid tax invoice, and the recipient cannot claim credit against it.
The threshold has fallen repeatedly — from ₹500 crore at launch to ₹5 crore today — so a business comfortably outside it one year can be inside it the next. It is worth checking annually rather than assuming.
Common invoice mistakes
Charging CGST and SGST on an inter-state supply. The customer cannot claim it correctly and the invoice has to be reissued.
Rounding each line separately. Round the total, not every line, or the invoice will not reconcile with the return.
Discounts applied after the invoice. A discount shown on the invoice reduces the taxable value and therefore the GST. A discount given later as a credit note is treated differently and needs the recipient to reverse their credit.
Missing HSN or SAC codes. They are mandatory above specified turnover thresholds, and returns are rejected without them.
What this calculator assumes
- The rate you select applies to the whole amount, with no mixed-rate lines.
- Prices are exclusive or inclusive as you indicate, with no reverse charge.
- The CGST and SGST split is exactly half each, which is how every current rate is structured.
- Compensation cess, which still applies to pan masala and tobacco on top of 28%, is not included.
- Rounding is applied to the final figures rather than line by line.