When GST was implemented in India in the year 2017, the idea was the unification of all indirect taxes into one. But due to several challenges in its implementation, we ended up with not just one but four types of taxes under GST and multiple tax slabs.
GST is a destination-based tax which is levied on transactions. It has subsumed several indirect taxes earlier levied by the central government like Excise Duty, Service Tax, Custom Duty etc. It has also replaced several indirect taxes levied by the state governments like VAT, Luxury Tax, etc. Transactions within a state are considered intra-state transaction while those happening between two or more states are called inter-state transactions. A taxpayer must pay two types of GST on intra-state transactions namely CGST and SGST if the destination of supply is a state; or CGST and UTGST if the recipient is located in a Union Territory. The tax collected as CGST goes to the Central government while SGST goes to the state government and UTGST goes to the Union Territory government. Similarly, if the transactions is between 2 states, the taxpayer has to levy IGST, which is distributed between the Center and the States as per their respective arrangements. Hence, as you can see there are four types of taxes placed under GST, namely:
- CGST - full form -Central Goods and Services Tax
- SGST - full form - State Goods and Services Tax
- UTGST - full form - Union Territory Goods and Services Tax
- IGST - Integrated Goods and Services Tax
What is CGST?
It is the type of GST which is levied and collected by the Central Government. It has replaced various indirect taxes levied by the Central Government like Service Tax, Central Excise Duty, Customs Duty, SAD, CST etc. When GST is levied on intra-state transactions, one half of it is CGST. The other half is SGST in case of states and UTGST in case of Union Territories. The GST is charged on the taxable value of the product or service.
e.g. Let’s say that a business wants to sell a product to a buyer and both are located in Maharastra. Assuming that the base price of the product is Rs 5,000 and rate of GST applicable is 12%, the tax liability on the transaction will be Rs 600. Since, such a transaction will be an intrastate transaction, the GST charged at the rate of 12% consists of CGST levied @ 6% and SGST levied @ 6%. Hence, the Central and State governments pocket Rs 300 each as tax from this transaction.
What is SGST?
Similar to CGST, the SGST is the component of GST which is levied and collected by the state government. It is one of the two taxes levied on the interstate transactions. As explained earlier, the other half part of tax is CGST. SGST has replaced various indirect taxes levied earlier by the state governments like VAT, Entertainment Tax, Entry Tax, Sales Tax, Luxury Tax, States cesses and surcharges.
E.g., by referring to the example discussed earlier, you can see that half of the total GST collected goes to the Central Government. The other half goes in the pocket of the State Government. So, out of Rs 600 collected as GST, the Maharashtra government gets Rs 300.
What is IGST?
When a transaction or supply occurs between two states, the GST is levied in the form of IGST. This form of GST is also levied on imports. Half of the total IGST collected from an inter-state transaction goes to the account of the Central Government. The other half is also collected by the Central Government but is distributed to the states/ union territores where the supply of the product or service has been made as GST is a destination-based tax. This ensures that state governments do not need to deal with each other for collection and distribution of GST.
e.g., Let’s say that a taxpayer wants to make an inter-state transaction from Maharastra to a buyer located in Punjab. Assuming that the base price of the product supplied is Rs 5,000 and IGST charged @ 12% (Rs 600), the total tax will be collected by the Central Government. It will distribute the state’s share from the tax collected to the state which received the supply.
What is UTGST or UGST?
As we discussed earlier, when a transaction occurs within a state, the government levies CGST + SGST; when a transaction occurs between two states, the government levies IGST. However, when a state makes a transaction to any of the five Union Territories, the government charges CGST + UTGST. Just like SGST is collected by the state government receiving the supply, the IGST is collected by the Union Territory Government receiving the supply. The reason why UTGST exists is that the SGST for states cannot be implemented in Union Territories that do not have a legislature. Since Delhi and Puducherry have their own legislatures, they can levy and collect SGST like other states instead of UTGST.
E.g., Let’s say that a taxpayer wants to supply goods to Chandigarh, which is a Union Territory, the government will charge CGST as well as UTGST on the transaction. Assuming that the rate of GST is 18%, it will consists of CGST levied @ 9% and UTGST levied @ 9%. As a result, both the Central Government and the Union Territory Government will pocket Rs 450 each as tax.
Differences between CGST, SGST, IGST and UTGST
|Types of Differences||CGST||SGST||IGST||UGST/ UTGST|
|Applicable transactions (Goods & Services)||Intrastate (Within one state)||Intrastate (Within one state)||Inter-state (between two states or one state and one UT) and imports||Within one Union Territory (UT)|
|Collected by||Central Govt.||State Govt.||Central Govt.||UT Govt.|
|Benefitting Authority||Central Govt.||State Govt.||Central Govt. & State Govt.||UT Govt.|
|Tax Credit Use Priority||First - CGST|
|Second – IGST||First - SGST|
|Second - IGST||First - IGST|
Second - CGST
Third - SGST|First - UTGST
Second - IGST|
Claiming ITC in Case of Different Types of GST
The most important feature and benefit of GST is its Input Tax Credit mechanism. A taxpayer can use the credits of CGST, SGST and IGST against each other. Any IGST credit is first used to set off any IGST liability, then CGST and then SGST. Any CGST credit is first used to set off any CGST liability, then IGST liability, but cannot be used to setoff SGST liability. Similarly, any SGST liability is first used to set off any SGST liability, then IGST liability, but cannot be used to setoff CGST liability.
However, to take the full benefit of ITC, you and your vendors need to file returns correctly, reconcile returns timely and comply with the GST laws. This is where the SahiGST world-class cloud-based platform can help you. The robust tax filing platform offered by SahiGST is fully capable of handling even the last day rush to give you a smooth and streamlined experience making the filing process a breeze for you.
SahiGST also offers everything you require to comply with the GST laws right from registration, filing and reconciliation of returns to the cancellation of registration at one place.
We hope that this guide helped you understand why the government has divided GST into four categories and how these taxes are levied and collected. The GST is a new tax system, and therefore it constantly undergoes a lot of fine-tuning. It gets difficult for the taxpayers to stay updated with the constantly changing GST laws.