Taxes Subsumed under GST
The Goods and Services Tax (GST) created a unified indirect tax framework by subsuming several Central and State taxes and levies. Important taxes merged into GST included Central Excise Duty, Service Tax, Additional Customs Duty, surcharges, State-level Value Added Tax (VAT), and Octroi.
Several levies applicable to the inter-State transportation of goods were also removed under the GST regime. The subsuming of multiple taxes was intended to create a more unified taxation system for goods and services.
GST applies to different types of transactions, including sale, transfer, purchase, barter, lease, and import of goods and/or services.
Exam Point: GST covers a wide range of transactions and is not restricted only to the sale and purchase of goods.
Dual GST Model in India
India follows a Dual GST Model, which means that GST is administered by both the Union Government and State Governments.
For transactions taking place within a single State, GST is divided into Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). CGST is levied by the Central Government, while SGST is levied by the State Government.
For inter-State transactions and the import of goods or services, Integrated Goods and Services Tax (IGST) is levied by the Central Government.
| Type of Transaction | GST Applicable | Levied By |
|---|---|---|
| Intra-State Transaction | CGST + SGST | Central and State Governments |
| Inter-State Transaction | IGST | Central Government |
| Import of Goods or Services | IGST | Central Government |
Exam Point: India follows a Dual GST Model in which both the Union and State Governments administer GST.
GST as a Destination-Based Tax
GST is a consumption-based or destination-based tax. Therefore, tax revenue belongs to the State where the goods or services are consumed rather than the State where they are produced.
For example, if goods are produced in one State but finally consumed in another State, the tax revenue is associated with the destination or consuming State.
The IGST mechanism affects the collection process of State Governments because States do not directly collect their share of tax in inter-State transactions. Under the earlier taxation system, States could directly collect certain tax revenues from the relevant authority.
Exam Point: Under GST, the destination State or consuming State receives the tax benefit.
Revenue Neutral Rate (RNR)
Meaning of Revenue Neutral Rate
The Revenue Neutral Rate (RNR) is a single GST rate that generates the same amount of revenue as the taxes subsumed under GST generated before the introduction of GST in a specified base year.
The revenue of both the Central and State Governments from subsumed taxes is considered while determining the RNR.
The main purpose of RNR is to ensure fiscal neutrality during the transition to GST. In simple words, the Government should neither gain nor lose tax revenue merely because the earlier taxes have been replaced by GST.
Formula for Revenue Neutral Rate
The simple formula used by the Committee is:
RNR = R / B
Where:
R = Total revenue from subsumed taxes in the base year
B = Estimated GST tax base
The revenue figure excludes items such as liquor and property, as these do not fall under GST according to the provided content and continue under separate State taxation arrangements.
The estimated GST tax base includes the taxable value of goods and services after considering exemptions, Input Tax Credits, exports, thresholds, and other adjustments.
Exam Point: RNR = Total Revenue from Subsumed Taxes ÷ Estimated GST Tax Base.
Arvind Subramanian Committee Recommendations
The committee headed by Chief Economic Advisor Arvind Subramanian suggested a Revenue Neutral Rate of approximately 15% to 15.5%.
Before the introduction of GST in 2017, the committee specifically recommended an RNR of 15.3%.
The Committee proposed the following rate structure:
| Category | Proposed Rate |
|---|---|
| Lower Tax Rate | 12% |
| Standard Rate | 17%–18% |
| Sin Tax | 40% |
The estimated RNR of 15.3% meant that if GST were collected at an average rate of 15.3%, the Government was expected to receive approximately the same revenue as under the pre-GST indirect tax system.
Initial GST Classification of Goods
On 1 July 2017, during the initial GST tax assessment, the GST Council classified approximately 1,211 items based on HSN Codes and customs duty categories.
These items were placed in the following tax brackets:
0% or Zero Rate, 5%, 12%, 18%, and 28%.
Subsequent GST reforms reduced tax rates on several goods and changed the classification of different items.
According to the provided content, these reforms reduced the effective GST tax rate to 11.6% at one stage.
It was estimated that the reduction in the effective tax rate could save individuals approximately ₹100,000 over their lifetime.
Trend in Revenue Neutral Rate
| Year/Period | RNR/Effective Rate |
|---|---|
| 2015 RNR Committee | 15.3% |
| May 2017 | 14.4% |
| November 2017 | 12.6% |
| January 2018 | 12.2% |
| July 2018 | 11.8% |
| December 2018 | 11.6% |
| July–September 2019 | 11.6% |
| September 2023 | 12.2% |
Exam Point: The Arvind Subramanian-led Committee recommended 15.3% as the Revenue Neutral Rate before GST implementation.
Harmonized System of Nomenclature (HSN) Code
Meaning of HSN Code
The Harmonized System of Nomenclature (HSN) Code is used for the classification of goods under GST in India.
India has been a member of the World Customs Organization (WCO) since 1971.
Initially, India used six-digit HSN Codes to classify goods for Customs and Central Excise. Later, Customs and Central Excise added two additional digits to make the classification more precise, resulting in an eight-digit classification system.
The main purpose of HSN Codes is to make GST classification systematic and globally accepted.
Structure of the Six-Digit HSN Code
An HSN Code is a six-digit code that uniquely identifies a product.
| Digits | Identification |
|---|---|
| First Two Digits | Chapter |
| Next Two Digits | Heading |
| Last Two Digits | Subheading |
For example, the first two digits identify the broad chapter, the next two digits provide the heading, and the final two digits identify the subheading.
Exam Point: In a six-digit HSN Code, 2 digits represent the Chapter, 2 digits represent the Heading, and 2 digits represent the Subheading.
Importance of HSN Codes
HSN Codes eliminate the need to upload or provide detailed descriptions of goods.
This saves time and simplifies the GST return filing process, particularly as GST returns become increasingly automated.
Therefore, HSN Codes provide a standardised method of identifying and classifying goods.
HSN Code Requirement Based on Turnover
According to the provided content, the requirement to mention an HSN Code on invoices depends on the company’s turnover in the preceding financial year.
| Turnover in Preceding Financial Year | HSN Requirement |
|---|---|
| Up to ₹15 million | HSN Code not required |
| More than ₹15 million and up to ₹50 million | First 2 digits of HSN Code |
| Above ₹50 million | First 4 digits of HSN Code |
Exam Point: HSN disclosure requirements increase with the turnover of the business.
GST Rates
GST Rate Structure from 22 September 2025
According to the provided content, from 22 September 2025, India’s GST system follows a simplified structure with four standard rates:
0%, 5%, 18%, and 40%.
The 0% and 5% rates generally apply to essential goods and services. The 18% rate is the standard rate, while the 40% rate applies to luxury and sin goods.
| GST Rate | General Category |
|---|---|
| 0% | Zero-rated/essential items |
| 5% | Essential goods and services |
| 18% | Standard GST rate |
| 40% | Luxury and sin goods |
The changes were announced by the Indian Government on 3 September 2025 and became effective from 22 September 2025.
The reform removed the 12% and 28% GST slabs, simplifying the GST rate structure.
In his Independence Day speech in 2025, the Prime Minister announced that GST rate changes would be implemented by Diwali. The September 2025 reforms implemented the announced changes.
GST Rates Before September 2025 Reforms
Before the September 2025 reforms, GST had multiple slab rates of:
0%, 5%, 12%, 18%, 28%, and 40%.
Several essential goods were exempt from GST. These included dairy products, products of milling industries, fresh vegetables and fruits, meat products, and other basic groceries and necessities.
Removal of Check-Posts after GST
After the introduction of GST in July 2017, check-posts across India were gradually abolished.
The removal of check-posts enabled the faster movement of goods and reduced logistics time.
The inclusion of Octroi within the GST framework further supported the easier movement of goods across different States.
GST Compensation to States
Compensation for Revenue Loss
Before the GST rollout in 2017, the Central Government proposed a compensation mechanism to protect the revenue interests of States.
States were assured compensation for revenue losses for five years from the implementation of GST.
The Government also anticipated the eventual inclusion of petroleum and petroleum products under GST.
According to the provided content, no binding legislation had been enacted to formalise the stated commitment.
The GST Council also adopted a concept paper discouraging frequent changes in GST rates to improve stability in the tax system.
GST Compensation Released to States
The Central Government released ₹353 billion as GST compensation to States.
The amount was provided to compensate States for revenue losses arising from GST implementation.
However, the Central Government faced criticism regarding delays in the payment of GST compensation.
E-Way Bill
Meaning of E-Way Bill
An E-Way Bill is an electronic permit used for the transportation or shipment of goods. It performs a function similar to a traditional waybill.
The E-Way Bill is an electronic document, and therefore a paper bill is not required.
According to the provided content, the E-Way Bill became mandatory for the inter-State transportation of goods from 1 June 2018.
It is required for the inter-State movement of goods beyond 10 kilometres where the value of merchandise exceeds ₹50,000.
Exam Point: An E-Way Bill is an electronic permit for the movement of goods.
Registration and Generation of E-Way Bill
Registered GST taxpayers can register on the E-Way Bill Portal using their GSTIN.
Unregistered persons and transporters can enrol in the E-Way Bill System by providing their PAN and Aadhaar.
The E-Way Bill can be generated by the supplier, recipient, or transporter.
Validity of E-Way Bill
The validity of an E-Way Bill is one day for every 200 kilometres or part thereof.
The validity may be extended online before the E-Way Bill expires.
Exam Point: E-Way Bill validity is one day for every 200 km or part thereof.
Form EWB-01
The E-Way Bill uses Form EWB-01.
The contents of Part-A of Form EWB-01 cannot be edited or modified after generation.
However, Part-B can be updated with details such as:
- Vehicle details
- Railway Receipt (RR)
- Airway Bill
- Other transportation details
Exam Point: Part-A of EWB-01 cannot be modified after generation, while Part-B can be updated with transportation details.
Intra-State E-Way Bill
The intra-State E-Way Bill system was introduced gradually in different States.
Karnataka successfully introduced the intra-State E-Way Bill from 1 April 2018.
Five States—Andhra Pradesh, Gujarat, Kerala, Telangana, and Uttar Pradesh—started mandatory intra-State E-Way Bill implementation from 15 April 2018.
Together, these five States accounted for 61.8% of inter-State E-Way Bills.
Six additional States—Jharkhand, Bihar, Tripura, Madhya Pradesh, Uttarakhand, and Haryana—introduced the system from 20 April 2018.
All States were required to introduce the intra-State E-Way Bill system by 30 May 2018.
The intra-State E-Way Bill system helped establish a seamless nationwide single E-Way Bill framework.
Important E-Way Bill Dates
| Date | Development |
|---|---|
| 1 April 2018 | Intra-State E-Way Bill introduced in Karnataka |
| 15 April 2018 | Mandatory rollout in five pilot States |
| 20 April 2018 | Six more States introduced the system |
| 30 May 2018 | Deadline for all States to introduce intra-State E-Way Bill |
| 1 June 2018 | Mandatory for inter-State transport as stated in the provided content |
Reverse Charge Mechanism (RCM)
Meaning of Reverse Charge Mechanism
The Reverse Charge Mechanism (RCM) is a GST mechanism under which the recipient or receiver pays GST instead of the supplier.
According to the provided content, the receiver pays tax on behalf of unregistered or smaller material and service suppliers.
Under RCM, the recipient of goods is eligible for Input Tax Credit (ITC), while the unregistered dealer is not eligible for ITC.
Exam Point: Under the Reverse Charge Mechanism, the recipient pays GST instead of the supplier.
Goods Excluded from GST
Certain goods remain outside the GST framework.
Tobacco Products
Products such as cigarettes and other tobacco-based items attract separate taxes.
Alcohol for Human Consumption
Alcohol for human consumption is excluded from GST.
The exclusion relates to alcohol intended for human consumption and not commercial or industrial use.
Petroleum and Petroleum Products
The following petroleum products remain outside GST according to the provided content:
- Petroleum Crude
- High-Speed Diesel
- Motor Spirit or Petrol
- Natural Gas
- Aviation Turbine Fuel (ATF)
At the time of GST implementation in 2017, the Government stated that petroleum and petroleum products could eventually be brought under GST.
However, according to the provided content, no concrete progress had been made as of 2025.
Key Points
- GST subsumed Central Excise Duty, Service Tax, Additional Customs Duty, surcharges, State VAT, and Octroi.
- GST applies to sale, transfer, purchase, barter, lease, and import of goods and/or services.
- India follows a Dual GST Model.
- CGST and SGST apply to intra-State transactions.
- IGST applies to inter-State transactions and imports.
- GST is a destination-based or consumption-based tax.
- RNR ensures fiscal neutrality during the transition to GST.
- The simple RNR formula is RNR = R/B.
- The Arvind Subramanian Committee recommended 15.3% as the RNR.
- The Committee proposed 12% lower rate, 17%–18% standard rate, and 40% sin tax.
- Approximately 1,211 items were initially classified into GST slabs on 1 July 2017.
- India has been a member of the WCO since 1971.
- The HSN Code is used to classify goods under GST.
- A six-digit HSN Code identifies the Chapter, Heading, and Subheading.
- From 22 September 2025, the GST rates mentioned in the content are 0%, 5%, 18%, and 40%.
- The 12% and 28% slabs were eliminated under the September 2025 reforms.
- GST check-posts were gradually abolished after July 2017.
- States were assured GST revenue compensation for five years.
- The Central Government released ₹353 billion as GST compensation to States.
- An E-Way Bill is an electronic permit for transportation of goods.
- E-Way Bill validity is one day for every 200 km or part thereof.
- Part-A of Form EWB-01 cannot be modified after generation.
- Part-B can be updated with transportation details.
- Under RCM, the recipient pays GST instead of the supplier.
- Alcohol for human consumption and specified petroleum products remain outside GST.
Quick Revision Summary
India follows a Dual GST Model consisting of CGST, SGST, and IGST. GST is a destination-based tax, meaning revenue belongs to the place of consumption. The Revenue Neutral Rate (RNR) is the rate that generates the same revenue as the pre-GST subsumed taxes, and the Arvind Subramanian Committee recommended an RNR of 15.3%. HSN Codes classify goods systematically under GST. The E-Way Bill is an electronic permit for the movement of goods, and its validity is generally one day for every 200 km or part thereof. Under the Reverse Charge Mechanism (RCM), the recipient pays GST instead of the supplier. Alcohol for human consumption and specified petroleum products remain outside the GST framework according to the provided content.