Understanding GST terminology is one of the biggest challenges for students, accountants, business owners, and job seekers in India. Many people struggle not because GST is difficult, but because the GST terms are written in complex legal language. This detailed guide on Top 25 GST Terms Explained in Simple Language is created to remove that confusion completely.
India has over 1.4 crore active GST registrations, and every registered taxpayer, accountant, or commerce student must be familiar with basic GST concepts to ensure compliance and avoid penalties. Whether you are preparing for accounting jobs, GST interviews, or simply want to understand how tax works in India, this article will give you clear, practical explanations using real-life context.
Why Understanding GST Terms Is Important
GST is not just a tax system; it is a compliance-driven structure. Wrong understanding or misinterpretation of GST terms can result in:
- Late fees and penalties
- Incorrect return filing
- ITC rejection
- Notices from tax authorities
Professionals with strong GST fundamentals earn 20–35% higher salaries compared to those with only basic accounting knowledge.
Top 25 GST Terms Explained in Simple Language
1. Goods and Services Tax (GST)
GST is an indirect tax levied on the supply of goods and services in India. It replaced multiple indirect taxes such as VAT, service tax, excise duty, and entry tax.
GST follows the destination-based taxation system, meaning tax is collected where goods or services are consumed.
2. CGST (Central GST)
CGST is the portion of GST collected by the Central Government on intra-state sales (sales within one state).
For example, if GST is 18%, 9% goes to CGST when the transaction occurs within the same state.
3. SGST (State GST)
SGST is collected by the State Government on intra-state sales. It is charged along with CGST.
CGST + SGST = Total GST for intra-state transactions.
4. IGST (Integrated GST)
IGST applies to inter-state sales and imports. It is collected by the Central Government and later distributed to states.
IGST ensures a smooth flow of tax credit across state boundaries.
5. GSTIN (GST Identification Number)
GSTIN is a 15-digit unique registration number assigned to every GST-registered person.
Structure of GSTIN:
- First 2 digits: State code
- Next 10 digits: PAN
- Next 1 digit: Entity code
- Last 2 digits: Checksum
6. Aggregate Turnover
Aggregate turnover refers to the total value of all taxable supplies, exempt supplies, exports, and inter-state supplies under the same PAN.
GST registration becomes mandatory when turnover exceeds ₹40 lakh for goods and ₹20 lakh for services (lower limits for special category states).
7. Taxable Person
Any individual or business registered or liable to be registered under GST is called a taxable person.
This includes proprietors, partnership firms, companies, and LLPs.
8. Supply
Supply is the core concept of GST. It includes sale, transfer, barter, exchange, license, rental, or disposal of goods or services for consideration.
Without supply, GST cannot be charged.
9. Input Tax Credit (ITC)
ITC means the tax paid on purchases that can be adjusted against tax payable on sales.
Proper ITC utilization reduces tax burden and improves cash flow for businesses.
10. Reverse Charge Mechanism (RCM)
Under RCM, the responsibility to pay GST shifts from the supplier to the recipient.
This usually applies in cases such as unregistered supplier transactions and specified services.
11. Composition Scheme
The composition scheme is designed for small taxpayers with lower compliance burden and fixed tax rates.
However, ITC cannot be claimed under this scheme.
12. HSN Code (Harmonised System of Nomenclature)
HSN codes are used to classify goods under GST.
Using correct HSN codes ensures accurate tax rates and avoids compliance errors.
13. SAC Code (Services Accounting Code)
SAC codes are used to classify services under GST.
Each service category has a specific SAC for tax identification.
14. Tax Invoice
A tax invoice is a legal document issued by a registered supplier for taxable supplies.
Without a valid tax invoice, ITC cannot be claimed.
15. Bill of Supply
Bill of supply is issued by composition dealers or suppliers of exempt goods/services.
GST is not charged in a bill of supply.
16. GSTR-1
GSTR-1 is a monthly or quarterly return that contains details of outward supplies (sales).
Accurate GSTR-1 filing is essential for customer ITC claims.
17. GSTR-3B
GSTR-3B is a summary return used to declare total tax liability and make GST payment.
Late filing attracts interest and penalties.
18. GSTR-2B
GSTR-2B is a static auto-drafted statement reflecting eligible ITC for a specific period.
Businesses rely on GSTR-2B to reconcile and claim correct ITC.
19. E-Invoice
E-Invoicing involves reporting invoice details on the government portal to generate a unique invoice reference number (IRN).
Mandatory for businesses above notified turnover limits.
20. E-Way Bill
An E-Way Bill is required for movement of goods beyond specified value limits.
Non-generation can result in penalties and seizure of goods.
21. Place of Supply
Place of supply determines whether CGST-SGST or IGST is applicable.
Incorrect determination leads to wrong tax payment.
22. Zero-Rated Supply
Zero-rated supplies include exports and supplies to SEZ units.
GST may not be charged or can be refunded in such cases.
23. Exempt Supply
Exempt supplies are goods or services not subject to GST.
No GST is charged, and ITC is not available.
24. Due Date
Due date refers to the last date for filing GST returns or payments.
Missing due dates leads to late fees and interest.
25. GST Return
GST returns are periodic filings containing supply, tax, and payment information.
Regular filing ensures compliance and uninterrupted ITC flow.
Simple GST Terms Overview Table
| GST Term | Simple Meaning |
|---|---|
| CGST | Central tax on intra-state sales |
| SGST | State tax on intra-state sales |
| IGST | Tax on inter-state sales |
| ITC | Credit of tax paid on purchases |
| RCM | Tax paid by receiver instead of supplier |
| GSTR-1 | Sales return |
| GSTR-3B | Summary tax payment return |
Common Mistakes Due to Poor GST Understanding
- Incorrect ITC claims
- Late return filing
- Wrong tax rate application
- Mismatch between GSTR-1 and GSTR-3B
- Notices from tax authorities
Businesses that maintain accurate GST compliance reduce audit risks significantly.
FAQs – Top 25 GST Terms Explained in Simple Language
1. Why should beginners learn GST terminology?
Understanding GST terms helps avoid mistakes, penalties, and career limitations in accounting roles.
2. Which GST term is most important?
Input Tax Credit is the most critical, as it directly impacts tax liability and cash flow.
3. Is GST difficult to learn?
GST appears difficult due to terminology, but becomes simple with clear concept understanding.
4. Can students learn GST without commerce background?
Yes, with structured learning and practice, GST can be learned by anyone.
5. What happens if GST terms are misunderstood?
Misinterpretation can lead to wrong filings, interest, penalties, and ITC loss.
6. How often do GST rules change?
GST rules are updated periodically through notifications and amendments.
Conclusion
GST knowledge has become a mandatory skill for anyone working in accounting, finance, or business operations in India. By understanding these Top 25 GST Terms Explained in Simple Language, professionals and students can build strong compliance fundamentals and boost their career prospects. Clear understanding reduces errors, saves money, and ensures smooth business functioning under GST law.
Mastering GST terminology is the first step toward becoming a confident accounting professional.
Disclaimer
This article is intended for educational and informational purposes only. GST rules and interpretations may change based on government notifications, amendments, and judicial decisions. Readers are advised to use professional judgment while applying these concepts.