If you’ve ever looked at a restaurant bill or a shopping receipt, you’ve seen those three-letter acronyms CGST, SGST, or IGST. For a long time, India’s tax system was a mess of different state and central taxes that made everything more expensive and confusing. That changed with the Goods and Services Tax (GST). As we head into 2026, the system has evolved into what many are calling GST 2.0. The goal is simple: make the tax system easier to understand, stop tax on tax, and lower the cost of everyday things like groceries and insurance. Think of it as a single, transparent tax that follows a product from the factory all the way to your doorstep.

The Four Flavors of GST

Even though we call it a single tax, it’s actually split up depending on where the buyer and seller are located. This is to make sure both the Central and State governments get their fair share.

A. CGST (Central GST)

When you buy something within your own state (like a phone from a local shop), the Central Government takes a portion. This is the CGST.

B. SGST (State GST)

On that same local purchase, your State Government also takes an equal portion. If the total tax is 18%, it’s usually split right down the middle: 9% for CGST and 9% for SGST.

C. IGST (Integrated GST)

This applies when goods move from one state to another (like ordering a laptop from Delhi to Mumbai). The Central Government collects the whole amount and then gives the consuming state its portion later. This keeps things smooth at state borders.

D. UTGST (Union Territory GST)

This is exactly like SGST but for Union Territories like Andaman & Nicobar or Ladakh.

The New GST 2.0 Slabs (2025-26)

The biggest change recently is the simplification of tax rates. The messy 12% and 28% slabs have mostly been phased out, leaving us with three main categories.

The Slab

What it’s for

Examples (Latest 2025-26 List)

0% (Exempt)

The absolute essentials

Fresh milk, vegetables, bread (roti), and now Health Insurance premiums.

5% (Merit)

Daily household needs

Soaps, toothpaste, hair oil, butter, and bicycles.

18% (Standard)

Most goods and services

Small cars, ACs, TVs, refrigerators, and your mobile bills.

40% (Luxury/Sin)

High-end or harmful stuff

Tobacco, aerated drinks (soda), and luxury SUVs.

Why the change? Moving things like ACs and small cars from 28% down to 18% was a huge move in late 2025 to help the middle class save more on big-ticket items.

How GST saves you money

Before GST, there was something called cascading tax. This basically meant you were paying tax on top of tax at every stage from the manufacturer to the wholesaler to the retailer.

With the Input Tax Credit (ITC) system, businesses only pay tax on the value they add.

For example, if a baker buys flour for ₹100 (plus ₹5 tax) and sells a cake for ₹200 (plus ₹10 tax), they don't pay the full ₹10 to the government. They deduct the ₹5 they already paid on the flour and only pay the remaining ₹5. This prevents prices from spiraling out of control.

What is Still Not Under GST?

Even in 2026, a few items are kept out of the GST net because they are huge revenue earners for states:

Petrol and Diesel: You still pay Excise Duty and VAT on these.
Alcohol (for drinking): States still control these taxes entirely.
Electricity: Usually carries a separate state duty.

Summary Table: GST at a Glance

Feature

Details for FY 2025-26

Nature of Tax

Destination-based (tax goes where the product is consumed)

Default Slab

18% (covers the majority of items)

Registration

Mandatory if turnover exceeds ₹40 Lakh (Goods) or ₹20 Lakh (Services)

E-Invoicing

Required for all businesses with ₹5 Crore turnover

New Exemption

Individual Health & Life Insurance is now 0% GST

Conclusion

The 2025-26 version of GST is much more user-friendly than when it was first launched. By moving everyday items like toothpaste and soap to the 5% bracket and clearing out the 28% luxury tag from items like refrigerators and small cars, the government has made One Nation, One Tax actually feel like a benefit for the average person. While there’s still some paperwork for businesses, for the consumer, it means clearer pricing and fewer hidden costs.

Frequently Asked Questions (FAQs)

Is GST included in the MRP?

Yes, by law the Maximum Retail Price (MRP) must include all taxes, including GST. A shopkeeper cannot charge you GST on top of the MRP.

Why do I see two different taxes (CGST/SGST) on my food bill?

Because you are eating at a restaurant in your own state. The tax is split 50/50 between the Central and State governments.

Is GST on health insurance really 0% now?

Yes! As of the September 2025 reforms, individual health and life insurance premiums are exempt from GST to make coverage more affordable.

What is an HSN code?

It's a universal identity code for products. Every item, from a pencil to a car, has a specific HSN code that tells the system exactly what GST rate to apply.

Do small shopkeepers have to charge GST?

Not necessarily. If their yearly sales are below ₹40 Lakh (for goods), they don't need to register for GST or charge it to you.

What is the Composition Scheme?

It’s a shortcut for small businesses (turnover under ₹1.5 Crore). They pay a very small, flat tax (usually 1%) and don't have to deal with complex monthly filings.

Is GST applicable on second-hand goods?

If you sell your old car to a neighbor, no. But if a dealer sells a used car, they pay GST only on the margin (the profit they made on the sale).

Can I get a refund for GST paid?

Usually, only businesses can claim GST back through Input Tax Credit. For regular consumers, the GST paid is final.

What is an E-way bill?

It’s a digital permit required if you are transporting goods worth more than ₹50,000 across state lines.

Is the 12% slab gone?

Mostly, yes. Under the 2025 GST 2.0 rules most items that were 12% have been moved down to 5% to make things cheaper for everyone.

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