GST basics for small business.
GST can feel complicated, but the core idea is simple. Today you'll understand how GST works, input tax credit, the composition scheme and the returns you file, so you can talk confidently with your CA.
This lesson explains the concepts. Rates, thresholds and rules change, and mistakes attract penalties. Use a Chartered Accountant or a reliable GST practitioner for registration and filing, and check the official GST portal (gst.gov.in).
How GST works
GST is charged at each step of the supply chain, but each business only pays tax on the value it adds, thanks to input tax credit.
Example (18% GST):
You buy materials for ₹1,000 + ₹180 GST (input tax)
You sell the product for ₹2,000 + ₹360 GST (output tax)
You pay the government: ₹360 − ₹180 = ₹180Rates and types
- Common GST rate slabs have included 0%, 5%, 12%, 18% and 28%, with some products at special rates; the slabs were restructured in 2025, so check the current rate for your product's HSN/SAC code on the official portal.
- Within the same state (Hyderabad seller to Hyderabad buyer): CGST + SGST (split equally).
- Between states (Hyderabad to Bengaluru): IGST.
The composition scheme
For small businesses (turnover up to ₹1.5 crore for most goods traders and manufacturers; lower limits apply for services), the composition scheme allows paying GST at a low fixed rate on turnover with simpler returns.
| Regular scheme | Composition scheme |
|---|---|
| Charge GST on invoices | Cannot charge GST on invoices |
| Claim input tax credit | No input tax credit |
| Can sell inter-state | Generally cannot make inter-state supplies of goods |
| More returns | Simpler, quarterly payment |
Which is better depends on your customers (businesses often prefer suppliers on the regular scheme so they can claim input credit).
Invoices and returns
- A GST invoice must include your GSTIN, invoice number and date, customer details, HSN/SAC code, taxable value, GST rate and amount.
- Regular taxpayers file returns such as GSTR-1 (sales) and GSTR-3B (summary and payment); some small taxpayers can file quarterly under the QRMP scheme.
- Late filing brings late fees and interest. Put due dates in your calendar.
You buy goods for ₹10,000 + ₹1,800 GST and sell them for ₹15,000 + ₹2,700 GST. How much GST do you pay to the government?
Output tax ₹2,700 − input tax credit ₹1,800 = ₹900.
A Hyderabad business sells to a customer in Chennai. Which GST applies?
Inter-state supply attracts IGST.
Your task (20 min)
Find the HSN or SAC code and the current GST rate for your main product or service on the official GST portal or with your CA. Calculate the GST on one sale and what input credit you could claim on your materials.
Lesson 15 complete!
You understand GST rates, CGST/SGST/IGST, input tax credit, the composition scheme, invoices and returns. Next: hiring your first person.
Next: Hiring your first person →