India’s Goods and Services Tax (GST) streamlines taxation with just four parts: SGST (state tax for intrastate transactions), CGST (central tax for intrastate transactions), IGST (tax for interstate transactions), and UTGST (state-like tax for specific union territories). Understanding these is essential for businesses and individuals to comply with GST rules, calculate tax dues correctly, and function smoothly within India’s tax system.

Understanding SGST, CGST, IGST and UTGST

The Goods and Services Tax (GST) plays a pivotal role in India’s taxation framework. This comprehensive tax system incorporates four distinct components, each serving a specific purpose:

  • SGST (State GST): Levied by individual states on transactions within their borders.
  • CGST (Central GST): Charged by the central government on intrastate transactions.
  • IGST (Integrated GST): Applicable for interstate transactions, ensuring a seamless tax flow between states.
  • UTGST (Union Territory GST): Similar to SGST, but applies in specific union territories without a legislative assembly.

Understanding what is CGST and SGST is essential for businesses to ensure proper tax compliance. Let us understand each in detail:

1. CGST

CGST Full Form

CGST stands for Central Goods and Services Tax, which is charged by the central government on intrastate supplies of goods and services, and it is governed by the CGST Act of 2017.

What is CGST?

In simpler terms, GST Goods and Services Tax as a single tax divided between the central and state government. CGST is the central government’s share collected on intra-state transactions.

It’s an indirect tax levied by the Indian central government on the supply of goods and services within a state, also known as intra-state transactions.

Intrastate Transactions and SGST

In conjunction with CGST, an equal amount of State Goods and Services Tax (SGST) is levied on the same intrastate supply. However, SGST is collected and governed by the specific state government where the transaction takes place.

When CGST is Applicable?

When a seller makes a sale to a buyer within the same state. For example, if a company in Karnataka sells furniture to a customer also in Karnataka, CGST would be applicable.

CGST Example With Calculation

To illustrate the practical application of the Central Goods and Services Tax (CGST), let’s consider an example: as a business owner, you sell a product for ₹10,000. The current GST rate for the product might be 18%, which means a total GST of ₹1800 (18% of ₹10,000) needs to be added. For intrastate sales (within the state), CGST and SGST (State GST) are typically half of the total GST rate each (assuming equal rates). So, CGST would be ₹900 (9% of ₹10,000), which is half of ₹1800.

Calculation of CGST: 

GST =  Value of Goods x GST rate / 100

  • = ₹10,000 x 18% / 100
  • = ₹1800

CGST = Total GST amount / 2 (assuming equal CGST and SGST rates)

  • = ₹1800 / 2
  • = ₹900

Therefore, the CGST amount levied on this transaction is ₹900.

Check out Razorpay’s GST Verification tool, a powerful resource for streamlining GST number verification and searching for Central and State GST jurisdiction.

2. SGST

SGST Full Form

SGST stands for State Goods and Services Tax. It is an indirect tax levied on intrastate supplies of goods and services by the State Government governed by the GST Act of 2017.

What is SGST?

SGST is the state government’s share of the GST on intra-state supplies. It works alongside CGST to create a unified tax system across India.

SGST applies on the supply of goods and services within a state, similar to CGST. Levied by the state government, the revenue collected from SGST goes directly to the state treasury, funding public services and development projects.

When SGST is Applicable?

SGST applies whenever there is a sale of goods and services within the same state in India. For example, a clothing store in Maharashtra selling a dress to a customer in Maharashtra would be subject to SGST.

SGST Example With Calculation

Let’s consider a hypothetical scenario to understand the application of State Goods and Services Tax (SGST). Imagine you run a clothing store in Maharashtra and sell a saree worth ₹10,000 to a customer within the state. The applicable GST rate on sarees is 5%, including CGST and SGST.

In this case, the SGST rate would be 2.5% (half of the total GST rate). Therefore, the SGST amount on the saree would be calculated as follows:

Calculation of SGST: 

  • SGST = (SGST rate/100) * Sale value
  • = 10,000 * (2.5/100)
  • = ₹250

Hence, in this transaction, you would charge ₹250 as SGST, which the state government collects.

Related Read: List of Goods and Service Tax GST Rates, Slab & Revision 2024

3. IGST

IGST Full Form

IGST stands for Integrated Goods and Services Tax; it is a tax levied on all interstate supplies of goods and services. It is collected by the central government and governed by the IGST Act of 2017

What is IGST?

Integrated Goods and Services Tax (IGST) simplifies interstate trade in India. Unlike intrastate transactions where separate CGST and SGST apply, IGST acts as a single tax for goods and services moving across state lines, or between union territories and states.

In simpler terms, it’s like a one-stop ticket for interstate purchases, combining the central and state government’s tax share into a single levy.

When IGST is Applicable?

When a seller in one state makes a sale to a buyer in a different state. For instance, if a company in Delhi ships clothes to a customer in Maharashtra, IGST would be applicable.

IGST is levied by the central government and the collected revenue is then divided between the central and state governments involved in the transaction.

IGST Example With Calculation

In this scenario, as a business owner in Delhi, when you sell goods worth ₹10,000 to a customer in Maharashtra, the Integrated Goods and Services Tax (IGST) will be applicable at 18% per the GST regulations.

Calculation of IGST: 

  • IGST = (Value of Goods) x (IGST Rate/100)
  • = ₹10,000 x (18/100)
  • = ₹1,800

Therefore, the IGST amount levied on this interstate transaction is ₹1,800.

The collected IGST of ₹1,800 by the central government is then divided, with ₹900 going to the central government and ₹900 to the receiving state (Delhi).

3. UTGST

UTGST Full Form

UTGST stands for Union Territory Goods and Services Tax. It’s a tax levied in India on the supply of goods and services within Union Territories (UTs). It functions similarly to SGST (State Goods and Services Tax) that applies within states

What is UTGST?

The Union Territory Goods and Services Tax is a component of India’s Goods and Services Tax (GST) system. UTGST applies to goods and services supplied within the Union Territories of India, which include Chandigarh, Dadra and Nagar Haveli, Daman and Diu, Lakshadweep, and the Andaman and Nicobar Islands.

One key aspect distinguishing UTGST from other GST components is that it is only specific to Union Territories. It operates within the GST law framework but has separate provisions for administration and collection.

When UTGST is Applicable?

The Union Territory Goods and Services Tax (UTGST) applies under specific circumstances:

  • Transaction Location: The supply of goods and services must occur within a Union Territory (UT) of India.
  • Legislative Assembly: The UT in question must not have its own legislative assembly.

Example for UTGST with calculation

Let’s delve into a practical example to understand the Union Territory Goods and Services Tax (UTGST) application. Suppose you are a business owner in Chandigarh and sell goods for ₹15,000. The GST rate is 12%, with UTGST applicable at 6%. 

Calculation of UTGST: 

  • UTGST = (Value of Goods) x (UTGST Rate/100)
  • = ₹15,000 x (6/100)
  • = ₹900

Therefore, the UTGST amount levied on this transaction is ₹900.

Understanding the Split: Why SGST, CGST, and IGST?

India’s GST system utilizes SGST, CGST, and IGST for a reason:

  • SGST (State GST): Lets state governments to collect tax on intrastate transactions (within a state), promoting fiscal autonomy.
  • CGST (Central GST): Provides central control with a consistent tax component across all states.
  • IGST (Integrated GST): Simplifies interstate trade (between states) with a unified tax structure, facilitating seamless movement of goods and services.

Benefits of the Split System:

  • Enhanced Revenue Sharing: The clear division ensures a fair distribution of tax revenue between the central and state governments.
  • Streamlined Tax Administration: It simplifies compliance for businesses operating both within and across states, minimizing administrative burdens.
  • Reduced Tax Cascading: The GST system, through separate taxes, aims to eliminate the “tax on tax” effect, leading to a more efficient tax structure.
  • Improved Business Environment: A unified and predictable tax framework fosters a more business-friendly climate, encouraging economic activity across India.

What Determines if CGST, SGST, IGST is Applicable?

Understanding which GST component applies to your transaction is crucial in India’s tax system. Here’s a breakdown:

  • Intrastate Transactions (Within a State): When the supplier and recipient are located in the same state, both CGST (Central GST) and SGST (State GST) are levied.
  • Interstate Transactions (Between States): For transactions between states, IGST (Integrated GST) is the single tax applicable. This simplifies the process and ensures seamless flow of goods and services across state borders.

Additional Factors:

While the location of supplier and recipient is primary, the nature of the transaction and specific goods/services involved might influence the GST component in rare cases. Refer to government-issued GST rules for such specific situations.

Verifying GST Applicability:

Businesses and individuals can utilize their GST Identification Number (GSTIN) to confirm the applicable GST component for their transactions. Additionally, government-provided GST guidelines offer further clarification.

How Are Input Tax Credits Adjusted?

Input Tax Credit (ITC)  means one can reduce the credit of taxes already paid on purchases from his GST liability arising from the sales of goods and services. 

Here are the rules to claim ITC under GST: 

  1. To pay IGST – First, IGST credit will be used, followed by CGST or SGST as per the taxpayer’s preference.
  2. For paying CGST – Starting from CGST credit, IGST credit will be used.
  3. To pay SGST –  First SGST credit and the IGST credit will be used.

Suppose manufacturer A from Maharashtra sold goods worth INR 10,000 to dealer B in Maharashtra only. Then, dealer B resells the goods to dealer C in Gujarat for INR 15,000. Finally, dealer C sells the goods to an end-user in Gujarat for INR 30,000. Let’s assume that the goods sold are at 9% CGST, 9% SGST (for intrastate supplies), and 18% IGST (for interstate supplies). 

Here’s how the collection of tax happens after input tax credit adjustment:

Maharashtra

Gujarat

Central Government

Step 1: For goods of INR 10,000 sold from A to B 10,000* SGST @ 9%= INR 900 10,000* CGST @ 9%= INR 900
Step 2: For goods of INR 15,000 sold by B to C 15,000*18%= INR 2,700 

(-) CGST credit = INR 9,00

(-) SGST credit = INR 9,00

Net tax payable = INR 900

Step 3: For goods of INR 30,000 sold by C to D 30,000* SGST @ 9%= INR 2,700

(-) IGST credit = NIL

Net payable = INR 2,700

30,000 CGST @ 9%= INR 2,700

(-) IGST credit = INR 2,700

Net payable = NIL

Total  900 2700 1800
Adjustment  (-) 900

Going to the centre

(+) 900
Final tax payable NIL INR 2,700 INR 2,700

 

Since GST is a destination-based tax, the state consuming the goods (in this case, Gujarat) will receive the GST amount. The state of Gujarat and the central government will receive INR 2,700 each. 

So this way, the central and state governments collect IGST, CGST, SGST.

You will have to issue GST-compliant invoices to pass on the credit for the taxes paid. The invoice should include the necessary details such as name, address, GSTIN of the supplier and the recipient of goods, HSN codes of the goods supplied, and so on. And if you want to know how to generate GST invoice, refer to our GST invoice guide and create GST-compliant invoices using Razorpay Invoices

If you want more in-depth details about GST, stay updated with Razorpay Learn

Difference between CGST, SGST, and IGST

Let’s discuss the key difference between IGST CGST and SGST in this section.

Feature CGST (Central Goods & Services Tax) SGST (State Goods & Services Tax)
IGST (Integrated Goods & Services Tax)
Nature Central Government Tax State Government Tax
Central Government Tax
Applicability Intrastate transactions (within a state) Intrastate transactions (within a state)
Interstate transactions (between states)
Collection Collected by Central Government Collected by the respective State Government
Collected by Central Government
Purpose Generates revenue for the Central Government Generates revenue for the respective State Government
Facilitates seamless trade and revenue sharing between Central & State Governments
Example Sale of goods from a store in Delhi to a customer in Delhi Sale of services by a company in Mumbai to a client in Mumbai
Sale of goods from a factory in Haryana to a distributor in Karnataka

 

Now as difference between IGST, CGST and SGST is totally clear, let’s dive into how IGST, SGST, and CGST are Collected.

How are IGST, SGST, and CGST Collected?

Understanding how CGST, SGST, and IGST are collected is crucial for navigating India’s GST system. Here’s a breakdown of the collection process for each type:

  • CGST (Central Goods and Services Tax): Collected by the Central Government, CGST applies to intrastate transactions (within a state). Businesses registered under GST collect CGST from their customers at the designated rate. These collected funds are then electronically deposited to the Central Government after a specified period, typically monthly or quarterly.

  • SGST (State Goods and Services Tax): Similar to CGST, SGST is levied on intrastate transactions but collected by the respective state government. Businesses registered under GST collect SGST from customers at the applicable rate alongside CGST. Both CGST and SGST are deposited to their respective government bodies after the designated filing period.

  • IGST (Integrated Goods and Services Tax): Applicable for interstate transactions (between states), IGST is collected by the Central Government. It incorporates both central and state tax components in a single levy. Businesses involved in interstate transactions collect IGST at the designated rate and deposit it to the Central Government after the specified filing period.

Key Points to Remember:

  • GST registration is mandatory for businesses involved in taxable supplies.
  • Businesses collect GST from customers at the applicable rate (CGST + SGST for intrastate or IGST for interstate).
  • Collected GST (CGST, SGST, or IGST) must be electronically deposited to the government after a specified period.
  • Failure to comply with GST registration, collection, or payment can result in penalties and legal action.

Frequently Asked Questions

1. What kind of tax is GST?

GST meaning, which stands for Goods and Services Tax, is a value-added tax levied on the consumption of goods and services.

2. How do you find your HSN code?

To find your HSN code, you can check out the GST portal. Alternatively, you can refer to the HSN code list found on various government websites. You must understand HSN & SAC meaning for accurately classifying goods and services.

3. Can you find the GST number by name?

Certainly, you can search for a taxpayer’s GST number or GSTIN using their name. The official GST portal offers a search feature where you can input the taxpayer’s name and access their GSTIN along with details such as GST registration documents, GST registration status, and GST registration date.

4. How many types of SGST are there?

There is only one form of SGST, which represents State Goods and Services Tax.

5. What is the GST number?

The Goods and Services Tax Identification Number (GSTIN), commonly referred to as the GST number, comprises a 15-character code given to every taxpayer enrolled under the GST system.

6. How many UTGST are there in India? 

India has only one form of UTGST implemented in the country’s union territories.

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Writer-by-chance and overthinker-by-choice, raging a war against the Pineapple-on-pizza brigade

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