GST (Goods and Services Tax) is an indirect tax introduced in India on 1 July 2017. It replaced multiple indirect taxes such as VAT, Service Tax, Excise Duty and Entry Tax with a single tax system.
Lesson Objective
Learn the basics of GST, understand different types of GST, registration requirements, GST rates and important concepts before configuring GST in Tally Prime.
1. What is GST?
GST is a destination-based indirect tax levied on the supply of goods and services. It is collected at every stage of the supply chain, while allowing input tax credit to eligible businesses.
Before GST
After GST
VAT
GST
Service Tax
GST
Excise Duty
GST
Entry Tax
GST
Luxury Tax
GST
2. Objectives of GST
Create one unified tax system across India.
Remove the cascading effect (tax on tax).
Simplify indirect taxation.
Promote transparency in taxation.
Increase tax compliance.
Reduce the overall tax burden in many sectors.
Support ease of doing business.
Improve revenue collection.
GST follows the principle of "One Nation, One Tax".
3. Types of GST
GST Type
Full Form
Applicable On
CGST
Central Goods and Services Tax
Intra-State Supply
SGST
State Goods and Services Tax
Intra-State Supply
UTGST
Union Territory Goods and Services Tax
Union Territories
IGST
Integrated Goods and Services Tax
Inter-State Supply
Remember:
Within the same State → CGST + SGST
Between two States → IGST
4. GST Registration
Businesses that satisfy the applicable legal conditions are required to obtain GST registration and receive a unique GST Identification Number (GSTIN).
Requirement
Description
GSTIN
15-digit GST Identification Number.
PAN
GST registration is linked with PAN.
Business Details
Legal name, address and business information.
Registration
Required according to applicable GST law.
Always check the latest GST registration rules and turnover thresholds before determining whether registration is required.
5. Common GST Tax Slabs
GST Rate
Common Examples
0%
Some essential goods and exempt supplies
5%
Certain essential products and services
12%
Selected processed goods and services
18%
Many goods and services (most common rate)
28%
Certain luxury and demerit goods
The applicable GST rate depends on the product or service classification (such as the relevant HSN or SAC code). Always verify the current rate before billing.
6. GSTIN Structure (15-Digit GST Number)
Every registered taxpayer under GST receives a unique GST Identification Number (GSTIN). It consists of 15 alphanumeric characters.
Position
Meaning
Example
1–2
State Code
10 (Bihar)
3–12
PAN Number
ABCDE1234F
13
Entity Number
1
14
Default Character
Z
15
Check Code
5
Example GSTIN
10ABCDE1234F1Z5
The GSTIN helps identify the State, PAN and business registration of a taxpayer.
7. HSN Code & SAC Code
GST uses standard classification codes for goods and services.
Code
Meaning
Used For
HSN
Harmonized System of Nomenclature
Goods
SAC
Services Accounting Code
Services
Examples
Product/Service
Code Type
Laptop
HSN
Printer
HSN
Computer Training
SAC
Website Development
SAC
Correct HSN and SAC Codes help apply the correct GST rate and generate accurate GST returns.
8. Input Tax Credit (ITC)
Input Tax Credit (ITC) allows eligible businesses to claim credit for GST paid on purchases against GST payable on sales, subject to GST law.
Transaction
GST
Purchase Goods
Input GST
Sell Goods
Output GST
Eligible Credit
Input GST can be adjusted against Output GST, subject to applicable rules.
Simple Example
Description
Amount
Output GST on Sales
₹18,000
Eligible Input GST on Purchases
₹12,000
Net GST Payable
₹6,000
ITC reduces the tax burden by allowing eligible credit for GST already paid on business purchases.
9. Composition Scheme vs Regular Scheme
Composition Scheme
Regular Scheme
Simplified compliance for eligible taxpayers.
Normal GST compliance.
Tax paid at prescribed rates under the scheme.
GST charged at applicable rates.
Input Tax Credit generally not available.
Eligible Input Tax Credit can be claimed subject to GST law.
Limited compliance requirements.
Detailed return filing and records.
Suitable for eligible small businesses.
Suitable for businesses operating under the regular GST system.
Choose the appropriate GST scheme based on your business eligibility and legal requirements.
10. Common GST Terminology
Term
Meaning
GST
Goods and Services Tax
GSTIN
GST Identification Number
HSN
Code used for Goods
SAC
Code used for Services
ITC
Input Tax Credit
Output Tax
GST collected on Sales
Input Tax
GST paid on Purchases
Reverse Charge
Tax payable by the recipient in specified cases under GST law.
Tax Invoice
Invoice issued for taxable supplies.
E-Way Bill
Electronic document for movement of goods where applicable.
Understanding GST terminology makes it easier to configure GST correctly and prepare accurate GST reports in Tally Prime.
11. Real Business Case Studies
Let's understand how GST is applied in different types of businesses.
Business
GST Application
Example
Computer Shop
Sale of Goods
GST charged on laptops and accessories.
Medical Store
Sale of Medicines
GST rate depends on the medicine category.
Restaurant
Food Services
GST applied according to applicable restaurant rules.
Maintain a valid GST registration where applicable.
Use the correct GSTIN on all tax invoices.
Assign the correct HSN or SAC Code.
Apply the correct GST rate to every product or service.
Issue tax invoices promptly.
Record purchases and sales accurately in Tally Prime.
Reconcile purchase records before claiming eligible ITC.
File GST returns within the prescribed due dates.
Maintain proper business records and supporting documents.
Regularly back up Tally data.
Good GST compliance helps avoid errors, improves record-keeping and supports timely filing of GST returns.
14. Practical Exercise & Interview Questions
Practical Exercise
Identify the GST type for an intra-state sale.
Identify the GST type for an inter-state sale.
Write a sample GSTIN and identify its parts.
Differentiate between HSN Code and SAC Code.
Calculate the net GST payable using Input Tax Credit.
List five products with different GST rates.
Create a customer ledger with GST details in Tally Prime.
Prepare a sample GST Sales Invoice.
Interview Questions
What is GST?
When was GST introduced in India?
What is the objective of GST?
What is GSTIN?
How many digits are there in a GSTIN?
What is the difference between CGST and SGST?
When is IGST applicable?
What is UTGST?
What is the difference between HSN Code and SAC Code?
What is Input Tax Credit (ITC)?
What is Output Tax?
What is the Composition Scheme?
What is the Regular GST Scheme?
What is a Tax Invoice?
What is an E-Way Bill?
What is Reverse Charge under GST?
Why is GST important for businesses?
How does GST help remove cascading taxes?
How is GST configured in Tally Prime?
Why is GST knowledge important for accountants?
15. Lesson Summary
Learned the basic concept of GST.
Understood the objectives of GST.
Studied CGST, SGST, IGST and UTGST.
Learned the structure of GSTIN.
Understood HSN Code and SAC Code.
Learned the concept of Input Tax Credit.
Compared the Composition and Regular GST Schemes.
Studied practical business examples.
Prepared for GST interviews.
Built a strong foundation for GST configuration in Tally Prime.
Congratulations!
You now have a strong understanding of the fundamentals of GST (Goods and Services Tax). This knowledge will help you configure GST correctly in Tally Prime and prepare accurate GST transactions and reports.
🧠 Quick Quiz
Which type of GST is applicable when goods are sold from one state to another state?