INDEX
GST on Goods in India
GST on Service in India
Key Difference in GST on Goods & GST on Service
Challenges in GST on Goods & GST on Service
GST on Goods vs GST on Services in India
GST on Goods vs GST on Services in India: What’s the Real Difference?
When India rolled out the Goods and Services Tax (GST) on July 1, 2017, it wasn’t just another tax reform — it was a total reboot of how the country looked at indirect taxes. Suddenly, dozens of different levies (excise, VAT, service tax… the whole alphabet soup) were rolled into one clean, nationwide system.
The idea? One country, one tax, one market. Simple in theory — but of course, reality had other plans.
Even under this “unified” GST umbrella, goods and services don’t exactly get the same treatment. Their tax rates, classification, and compliance rules still dance to different beats. Let’s unpack how it all actually works.
1. 🏭 GST on Goods: The Tangible Side of the Story
Goods are the physical stuff you can see, touch, and probably unbox in an oddly satisfying way. Everything from rice and soap to smartphones and SUVs falls under this category.
Classification: The HSN Code Game
Every good is tagged with an HSN (Harmonized System of Nomenclature) code — a fancy way of saying “a global catalog for everything ever made.”
Businesses have to print the right HSN code on invoices, which helps tax authorities identify exactly what’s being sold (and at what rate).
Tax Slabs for Goods
GST divides goods into five main tax brackets:
| Slab | Example Items |
|---|---|
| 0% (Exempt) | Food grains, fresh produce, educational books, medicines |
| 5% | Small appliances, footwear, packaged food items |
| 12% | Processed food, toothpaste, fruit juices |
| 18% | Standard consumer goods — electronics, cosmetics, paint |
| 28% | Luxury and “sin” goods — cars, tobacco, air conditioners |
Input Tax Credit (ITC):
If a business buys goods to resell or use in production, it can claim credit for the GST it already paid on those purchases. Basically, no double-taxing — you pay tax on the value added, not the whole thing twice over.
Exemptions:
Essential stuff — think basic food grains or fresh veggies — are often fully exempt. Luxury stuff? Expect the top slab (and sometimes an extra cess for good measure).
Quick examples:
A bag of rice? 0% GST.
A luxury sedan? 28% plus compensation cess — because comfort comes with a price.
2. 💼 GST on Services: The Intangible Economy
Now, services are trickier. You can’t hold them or weigh them, but they’re everywhere — from your Uber ride to your Netflix subscription.
Classification: SAC Codes
Every service gets a SAC (Services Accounting Code) — kind of like the HSN system for goods, but tailored for the service industry.
GST Rates on Services
Here’s how the slabs look for services:
| Slab | Example Services |
|---|---|
| 0% (Exempt) | Education, healthcare, rail freight, charitable activities |
| 5% | Passenger transport (some modes), online booking platforms |
| 12% | Mid-range services like restaurants, smaller hotels |
| 18% | Business and professional services — telecom, banking, IT, advertising |
| 28% | Premium or luxury entertainment — cinema, beauty salons, clubs |
Input Tax Credit (ITC):
Service providers can also claim ITC for business-related expenses — say, software subscriptions or consultancy fees.
Reverse Charge Mechanism (RCM):
Sometimes, the person receiving the service has to pay GST instead of the provider.
Example: A business hiring a foreign consultant or an unregistered local lawyer. The receiver pays the GST under RCM and claims ITC later.
Examples in action:
Restaurant bill: 12% GST.
Legal advice: 18% GST under RCM if the lawyer is unregistered.
3. ⚖️ Goods vs Services — A Quick Comparison
| Aspect | GST on Goods | GST on Services |
|---|---|---|
| Definition | Tangible items you can touch or see | Intangible activities or benefits |
| Classification | HSN Code | SAC Code |
| Tax Slabs | 0%, 5%, 12%, 18%, 28% | 0%, 5%, 12%, 18%, 28% |
| Input Tax Credit (ITC) | Available on goods used for business | Available on inputs for providing taxable services |
| Exemptions | Food, medicine, essential goods | Education, healthcare, transport services |
| Reverse Charge Mechanism (RCM) | Rarely applies | Common for specific service cases |
| Place of Supply | Based on delivery location | Based on recipient or provider’s location |
| Registration Threshold | ₹40 lakh (goods) | ₹20 lakh (services) |
4. 🧩 The Real-World Challenges
For Goods:
Classification confusion: One wrong HSN code and you’re suddenly under audit.
Exemption overlap: Is that item “processed food” or “prepared food”? The answer can change the tax rate by 13%.
For Services:
Place of supply headaches: If a company in Delhi provides an online service to a client in Bangalore — which state gets the tax? It depends, and it’s not always obvious.
Reverse charge chaos: Businesses often forget to pay under RCM, leading to penalties and backdated interest.
🧮 Wrapping It Up
While GST brings goods and services under one roof, they still live in different rooms. Goods are physical, easier to tag, but messier in classification. Services are intangible, harder to pin down, and full of grey zones like RCM and place-of-supply rules.
Understanding the split isn’t just for accountants — it’s key for any business to stay compliant, claim every bit of Input Tax Credit, and keep the taxman happy.
In short:
Goods = tangible, HSN-coded, rate-heavy.
Services = intangible, SAC-coded, rule-heavy.
And if you can tell them apart and file your returns correctly, congratulations — you’re already ahead of half the taxpayers in India.