The levy and collection of tax under GST works on a single principle: every taxable supply of goods or services attracts tax at the point of supply, and the government collects that tax through one of three routes — the supplier charging it forward, the recipient paying it under reverse charge, or an e-commerce operator collecting it at source. Section 9 of the Central Goods and Services Tax Act, 2017 levies CGST and a matching State GST on intra-state supplies, while Section 5 of the Integrated Goods and Services Tax Act levies IGST on inter-state supplies and imports. The rest is detail: when the liability arises, what value the tax sits on, who must register, and how credits flow.
What Triggers the Tax
The taxable event is “supply,” defined in Section 7 of the CGST Act. Supply covers every commercial transfer of goods or services made for consideration in the course of business — sales, rentals, leases, barters, exchanges, and licensing arrangements. If money or value changes hands and the transaction furthers a business purpose, GST applies.1Central Board of Indirect Taxes and Customs. Central Goods and Services Tax Act 2017 – Section 7 Scope of Supply
Two extensions widen the net. Importing services for a consideration counts as a supply even when the import has nothing to do with your business. And Schedule I of the Act treats certain transfers as taxable supplies even without consideration — most commonly, permanently transferring a business asset on which you previously claimed input tax credit. Give away office computers your business had already taken credit on, and GST still applies.1Central Board of Indirect Taxes and Customs. Central Goods and Services Tax Act 2017 – Section 7 Scope of Supply
Intra-State CGST and SGST, Inter-State IGST
Which tax you owe depends on where the supplier sits relative to the place of supply. When both fall in the same state, Section 9 of the CGST Act levies Central GST and the state levies an equivalent State GST. Both hit the same transaction so that revenue flows to both governments. The maximum CGST rate is capped at 20%, with a matching SGST.2Central Board of Indirect Taxes and Customs. Central Goods and Services Tax Act 2017 – Section 9
When a supply crosses state lines, Section 5 of the IGST Act replaces the dual levy with a single Integrated GST. IGST also covers goods imported into India. The maximum IGST rate is capped at 40%.3Central Board of Indirect Taxes and Customs. The Integrated Goods and Services Tax Act 2017 – Section 5
Getting this classification wrong is expensive. Pay the wrong tax to the wrong authority and you have to claim a refund for the misdirected amount while still owing the correct tax. Interest on the delayed correct payment runs up to 18% per annum for the entire period the tax remains unpaid.4Central Board of Indirect Taxes and Customs. CGST Act 2017 Section 50 – Interest on Delayed Payment of Tax
When the Liability Arises
Knowing a supply is taxable is not enough; you have to know exactly when the liability crystallizes. For goods, the time of supply is generally the date you issue the invoice, or the last date on which you were required to issue it. The government has effectively removed the obligation for registered persons other than composition dealers to pay GST at the time of receiving advance payments for goods, so the invoice date controls.5Central Board of Excise and Customs. Time of Supply in GST
For services, timing depends on whether you issue the invoice within 30 days of providing the service. If you do, the time of supply is the invoice date or the date payment is received, whichever comes first. Miss the 30-day window and the supply date shifts to when the service was actually provided or when payment arrives.5Central Board of Excise and Customs. Time of Supply in GST
Under reverse charge for goods, the time of supply is the earliest of: the date you receive the goods, the date payment leaves your bank account, or 30 days after the supplier issues the invoice. Single-purpose vouchers are taxed at issuance; multi-purpose vouchers are taxed at redemption.5Central Board of Excise and Customs. Time of Supply in GST
How the Taxable Value Is Set
Under Section 15 of the CGST Act, the taxable value is the transaction value — the price actually paid — provided the supplier and recipient are not related and the price is the sole consideration. Where the parties are related (for example, employer and employee, or entities where one controls 25% or more of the other’s voting shares), the transaction value may not be accepted, and value has to be determined through prescribed methods.6Central Board of Indirect Taxes and Customs. Value of Taxable Supply
Who Must Register
Not every business needs to register. The general threshold is an aggregate turnover exceeding ₹20 lakh per financial year, reduced to ₹10 lakh for special category states like the northeastern states and Himachal Pradesh.7Central Board of Indirect Taxes and Customs. Frequently Asked Questions
Section 24 of the CGST Act overrides the threshold in specific cases. Persons who must register regardless of turnover include:
- Anyone making inter-state taxable supplies.
- Persons required to pay tax under reverse charge.
- E-commerce operators required to collect tax at source under Section 52.
- Persons supplying through an e-commerce platform that collects TCS.
- Casual and non-resident taxable persons.
- Input Service Distributors and TDS deductors.
- Overseas providers of online information, database access, or online gaming services to unregistered recipients in India.
Operating without registration when required carries a penalty of ₹10,000 or the full amount of tax evaded, whichever is higher.9Central Board of Indirect Taxes and Customs. CGST Act 2017 – Section 122 – Penalty for Certain Offences
The Three Collection Routes
Forward Charge
The default route. The supplier adds GST to the invoice, collects it from the buyer, and remits it to the government. This covers the bulk of transactions.
Reverse Charge
Section 9(3) of the CGST Act flips the obligation to the recipient for notified supplies. The buyer pays tax directly to the treasury and is treated as if they were the supplier for GST purposes. Notified services where reverse charge commonly applies include legal services from advocates to business entities, director fees, goods transport agency services to registered recipients, most government services to businesses, security services to registered persons, residential dwellings rented to registered persons for business use, sponsorship services to bodies corporate and partnership firms, and insurance agent services to insurance companies.2Central Board of Indirect Taxes and Customs. Central Goods and Services Tax Act 2017 – Section 910Central Board of Indirect Taxes and Customs. Notification No 13/2017 – Central Tax (Rate)
Section 9(4) separately requires registered persons to pay reverse charge on purchases from unregistered suppliers. This provision was initially suspended but has since been operationalized for notified categories. The recipient must issue a self-invoice and a payment voucher to document the transaction.11Goods and Services Tax Council. GST Council – Reverse Charge Mechanism
Tax paid under reverse charge can be claimed as input tax credit, provided the goods or services are used for business and the other credit conditions are met.
Tax Collection at Source by E-Commerce Operators
Platforms that facilitate third-party sales bear a separate obligation. Section 52 of the CGST Act requires e-commerce operators to collect tax at source on the net value of taxable supplies made through them. The notified rate is 0.5% CGST plus 0.5% SGST on intra-state supplies, or 1% IGST on inter-state supplies.12Central Board of Indirect Taxes and Customs. CGST Act 2017 Section 52 – Collection of Tax at Source13Central Board of Indirect Taxes and Customs. FAQs on Tax Collection at Source
The operator deducts this amount when crediting the supplier’s account or making payment, whichever comes first. Collected TCS must be deposited with the government within ten days after the end of the month in which the collection was made. Operators also file an electronic statement listing all supplies facilitated through the platform and the TCS amounts. Suppliers see the TCS reflected in their electronic cash ledger and can use it to offset their own tax liability. E-commerce operators must register for GST regardless of turnover.14GST Council. FAQ on E-Commerce
The Composition Scheme Alternative
Small businesses can opt out of standard-rate collection under Section 10 of the CGST Act. Instead of charging GST on each invoice, composition dealers pay a flat percentage of turnover: 1% for traders, 2% for manufacturers, 5% for restaurants not serving alcohol, and up to 6% for other service providers under Section 10(2A). The statutory turnover ceiling is ₹50 lakh, though the government can raise it to ₹1.5 crore on the GST Council’s recommendation.15Central Board of Indirect Taxes and Customs. Central Goods and Services Tax Act 2017 – Section 1016Central Board of Indirect Taxes and Customs. Frequently Asked Questions on Composition Levy
Composition dealers cannot collect tax from customers and must issue a bill of supply rather than a tax invoice. They also forfeit the right to claim input tax credit on their purchases. Filing is lighter — quarterly payment through Form CMP-08 and a single annual return in GSTR-4 replace the monthly returns that regular taxpayers file. Breaching the turnover limit or violating eligibility conditions, such as making inter-state supplies (which composition dealers cannot do), results in immediate removal from the scheme and retrospective assessment at standard rates.
Input Tax Credit: The Offset Side of Collection
Input tax credit prevents tax from cascading at each stage of the supply chain. GST paid on business purchases offsets GST collected on sales. The credit is not automatic; Section 16 of the CGST Act imposes four conditions, all of which must be satisfied:
- You hold a valid tax invoice or debit note from a registered supplier, and the supplier has reported those details in their outward supply statement.
- You have actually received the goods or services. For goods arriving in installments, credit becomes available only after the last lot arrives.
- The supplier has paid the tax to the government, either in cash or by using their own legitimate input tax credit.
- You have filed your GST return for the relevant period under Section 39.
A payment deadline also applies: if you fail to pay your supplier the invoice amount, including tax, within 180 days, you must reverse the credit and pay interest. The credit becomes available again once you make the payment.17Central Board of Indirect Taxes and Customs. Section 16 – Eligibility and Conditions for Taking Input Tax Credit
Section 17(5) blocks input tax credit on specific purchases even where the four conditions are met. Blocked categories include most passenger vehicles seating 13 or fewer, food and beverages for personal consumption, employee vacation travel benefits, works contract services and construction materials for immovable property on own account, lost or destroyed goods, free samples, and tax paid as a consequence of fraud. Claiming credit on a blocked category leads to a demand for reversal plus interest at up to 24% per annum on the wrongly availed amount.18Central Board of Indirect Taxes and Customs. Section 17(5) of the CGST Act4Central Board of Indirect Taxes and Customs. CGST Act 2017 Section 50 – Interest on Delayed Payment of Tax
Returns, Interest, and Penalties
Regular taxpayers file GSTR-3B (summary return with tax payment) and GSTR-1 (outward supply details). Businesses with aggregate annual turnover up to ₹5 crore can opt for the QRMP scheme, filing both returns quarterly while making a monthly payment through Form PMT-06. Businesses above ₹5 crore file both returns monthly. Composition dealers pay quarterly through CMP-08 and file annually in GSTR-4.
Section 50 sets the interest framework. Late payment of tax attracts interest at up to 18% per annum from the due date until the tax is paid. Wrongly claimed and used input tax credit attracts interest at up to 24% per annum on the credit amount.4Central Board of Indirect Taxes and Customs. CGST Act 2017 Section 50 – Interest on Delayed Payment of Tax
Section 122 distinguishes between honest errors and deliberate evasion:
- Underpaying tax, claiming an excess refund, or wrongly availing credit for reasons other than fraud carries a penalty of ₹10,000 or 10% of the tax involved, whichever is higher.
- Fraud or deliberate suppression of facts raises the penalty to ₹10,000 or the full tax amount due, whichever is higher.
- Operating without required GST registration carries a penalty of ₹10,000 or the full amount of tax evaded, whichever is higher.
The gap between the 10% and 100% penalty tiers is where intent matters. A one-time classification error reads very differently from systematic understatement across multiple returns. Clean records and on-time filing are the strongest protection against the higher tier.
E-Way Bills for Goods in Transit
Collection extends to physical movement. Any consignment of goods worth more than ₹50,000 requires an electronic waybill before dispatch. This requirement under Section 68 of the CGST Act, read with Rule 138 of the CGST Rules, applies to both inter-state and intra-state movement. Some states have set lower thresholds for intra-state movement, so ₹50,000 is a baseline rather than a universal floor. Transporting goods without a valid e-way bill can result in detention of the goods and a penalty equal to 100% of the applicable tax.