GST in USA: How US Sales Tax Differs from India’s GST

There is no GST in the USA. The United States has no federal value-added tax or national sales tax. Most US states, along with many local jurisdictions, impose sales and use taxes on specified goods and services. Unlike India’s GST, which generally allows eligible businesses to claim input tax credits, US sales tax is primarily imposed on taxable retail transactions. Certain business purchases may qualify for resale or other exemptions, subject to applicable state laws.

By Amit Agarwal.

The catch for Indian founders is that a US sales tax duty can arise without a US office. California generally requires out-of-state retailers, including foreign sellers located outside the United States, to register with the California Department of Tax and Fee Administration (CDTFA) and collect use tax if combined sales of tangible personal property for delivery in California exceed US$500,000 in the preceding or current calendar year. This threshold includes qualifying sales by related persons under Section 267(b) of the Internal Revenue Code, including nontaxable sales such as sales for resale. Businesses may also establish sales tax nexus through physical presence or other qualifying activities, even when their sales remain below the economic nexus threshold. Additionally, marketplace-facilitated transactions require separate consideration, as the marketplace facilitator may be responsible for collecting and remitting the applicable tax on those sales.

Scope: US state sales and use tax rules, and India’s Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST) Acts, 2017, as of October 2026.

GST in USA: no federal VAT, only state sales tax

The United States taxes consumption at state level, not federal level. The Congressional Research Service notes that most countries have value-added taxes, and the United States is an exception. Founders who search for “GST in America”, “america gst”, “american gst” or “gst us” are usually looking for state sales and use tax.

Some states levy no general sales tax, though they differ. Oregon, Montana and New Hampshire have none. Alaska has no statewide sales tax, though many boroughs and cities levy local sales taxes. Delaware imposes no state or local sales tax but taxes the seller of goods or provider of services through a gross receipts tax, at 0.0945% to 1.9914% depending on business activity, or a variable rate on petroleum products that may reach 2.4218%. Most businesses first receive an activity-specific exclusion, generally from US$100,000 per month up to US$1,250,000. Elsewhere rates vary: California’s statewide base rate is 7.25%, plus district taxes in some areas.

Sales tax in USA vs India’s GST: key differences

US state sales and use tax compared with India’s GST (as of October 2026)

Feature	India: GST	US: sales and use tax
Who levies it	Centre and States under the CGST, IGST and State GST Acts	Most states, plus many cities, counties and districts; nothing federal
Rates	Goods at 5%, 18% and 40% from 22 September 2025 (Notification 9/2025-Integrated Tax (Rate)), plus a few lower special rates	Set by each taxing state and locality
Input credit	Available under Section 16 of the CGST Act	No input credit; a sale for resale is not taxed when documented, for example with a resale certificate
Registration trigger	Turnover-based under the CGST Act, with some categories required to register regardless of turnover	Nexus in the state, which can be economic: in Wayfair, South Dakota’s test was more than US$100,000 or 200 transactions, and South Dakota now uses US$100,000 only; California uses US$500,000

When an Indian founder must collect US sales tax

An Indian business must collect sales tax in a US state once it has nexus there. In South Dakota v. Wayfair (2018), the US Supreme Court dropped the physical-presence rule, so nexus can rest on sales volume alone, without a store or staff. Each state that has a sales tax sets its own threshold.

An Indian business may be required to register for and collect US state sales or use tax when it establishes sufficient nexus with a state and makes taxable sales covered by that state’s laws. Nexus may arise through physical presence, economic activity or other qualifying connections. However, having nexus does not necessarily mean every transaction is taxable, as exemptions, product classifications and marketplace facilitator rules may affect the collection obligation.

1. Compare annual sales and transaction counts in each destination state, including sales by related persons where the state counts them, with that state’s threshold.
2. Register with the state tax authority (in California, the CDTFA) before you collect.
3. Confirm whether the state taxes your product, using the state’s own guidance.
4. Collect, file and remit on the state’s schedule, and keep resale or exemption certificates for exempt sales.
5. If a US entity trades with the Indian parent, document the pricing under transfer pricing rules.

Still choosing a structure? See our guide to company registration in the USA from India and our comparison of US and India tax systems.

India side: exports to US customers

In India, a service to a US customer is zero-rated only if it is an “export of services” under Section 2(6) of the IGST Act: the supplier is in India, the recipient and the place of supply are outside India, payment is received in convertible foreign exchange (or rupees where the Reserve Bank of India permits), and the parties are not merely establishments of a distinct person. A US subsidiary is a separate person; a US branch of the same company is not. To export without paying IGST, Rule 96A of the CGST Rules requires a bond or Letter of Undertaking in Form GST RFD-11, furnished before the export.

Illustrative example: one founder, two flows

Assumptions: an Indian company with no related persons selling into California, calendar year 2026, no US office. It delivers taxable goods worth US$620,000 to California customers and bills a US client US$40,000 for software development, paid in foreign exchange.

• Goods: US$620,000 exceeds California’s US$500,000 threshold, so the company registers with the CDTFA and collects use tax on its taxable sales. On a US$1,000 sale, the 7.25% base rate gives US$72.50 before any district tax.
• Services: if all conditions in Section 2(6) are met and a Letter of Undertaking is on file, the US$40,000 is exported without IGST.

Common mistakes

• Assuming no US office means no US sales tax; California’s rule expressly reaches sellers located outside the United States.
• Leaving related companies out of the threshold count, or leaving out nontaxable sales such as sales for resale.
• Supplying export services without paying IGST before the bond or Letter of Undertaking that Rule 96A requires ahead of the export is in place.
• Confusing consumption tax with the generation-skipping transfer tax, explained below.

Frequently Asked Questions

Is there a GST in the USA?

No. The United States has no federal GST or VAT. Most states and many local governments levy retail sales and use tax instead. Oregon, Montana and New Hampshire have no general sales tax, and Delaware charges sellers a gross receipts tax rather than a sales tax.

Is there a GST tax in the US?

Not as a consumption tax. In US federal tax law, “GST” means the generation-skipping transfer tax under Chapter 13 of the Internal Revenue Code. Its rate is the maximum federal estate tax rate (40%) times the inclusion ratio, and the 2026 exemption is US$15 million per person.

Is a GST the same as a VAT?

Largely, yes. India’s GST is its version of a value-added tax: tax is charged at each stage of supply, and registered businesses credit tax paid on inputs under Section 16 of the CGST Act. US sales tax differs because it is charged once, at the final sale, with no input credit.

Is GST the same as federal tax?

No. India’s GST is a consumption tax shared between the Centre (CGST, IGST) and the States. The US federal government relies primarily on income taxes and levies no consumption tax of this kind; sales tax is a state and local levy.

This article is general information, not individualized tax or legal advice. Rules are stated as of October 2026. Consult a qualified professional in each country before acting.

If your Indian entity bills US customers or sits inside a cross-border group, keep it compliant: our team handles GST, ROC and annual filings. Talk to us about GST and India compliance.