Understanding GST and VAT: A Beginner's Guide
GST in India, VAT in Europe, sales tax in the US. Same idea, different names. Here is what every consumer and small business owner should know.
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Most countries levy a tax on the sale of goods and services. The names differ, GST, VAT, sales tax, but the idea is similar: a percentage added to the price of what you buy.
GST (Goods and Services Tax)
Used in India, Australia, Canada, Singapore and many others. India runs four main slabs (5%, 12%, 18%, 28%) split between central and state portions. Most everyday items fall in 5% or 12%, services and electronics in 18%, luxury goods in 28%.
VAT (Value Added Tax)
Used in the European Union and the UK. Standard UK VAT is 20%. Different goods may have reduced rates (5% for energy, 0% for most food). Businesses charge VAT on sales but reclaim VAT on purchases, so only the value added is taxed.
Sales tax
Used in the United States. Unlike VAT, US sales tax is collected only at the final sale, not at each step in the supply chain. Rates vary by state (0% in some, up to 9.5% combined in others).
Inclusive vs exclusive pricing
In India and the UK, posted prices usually include tax. In the US, prices are typically before tax, the tax is added at checkout. Always check which convention your seller uses.
Why it matters for your business
If you run a business, you need to know your country's threshold for tax registration, how to invoice with GST/VAT, and how to file returns on time. Late filing usually carries interest plus penalties.
Calculate quickly
Try our GST / Tax Calculator to add or remove tax from any price at any rate. Perfect for invoicing, comparing prices and checking receipts.