The Goods and Services Tax (GST) is a destination-based indirect tax, which means that an end-user is required to pay tax on goods and services they purchase or consume. The state that consumes the goods or services collects such tax and not the manufacturer state.
To understand the applicability of GST, it is necessary to know if the transaction is an intrastate (within the same state) or interstate (between different states) supply.
If the supply of goods happens within the same state, CGST and SGST will be applied by the supplier. Similarly, if the supply happens between two different states, the supplier charges IGST.
Let’s understand the concept of CGST, SGST, and IGST in detail.
What is the full form of CGST?
CGST stands for Central Goods and Services Tax. CGST is a tax charged on the intrastate supply of goods and services by the central government and is governed by the CGST Act, 2017.
SGST will also be levied on the same Intra State supply but will be governed by the State Government. This implies that both the Central and the State governments will agree on combining their levies with an appropriate proportion for revenue sharing between them.
What is the full form of SGST?
State Goods and Services Tax or SGST is an indirect tax levied on intrastate supplies of goods and services by the State Government. As explained above, CGST is levied on the same intrastate supply of goods and services but will be governed by the Central Government.
Still confused! Let’s understand the concepts with an example.
Let’s say, Mr. Raj is a goods dealer in Karnataka and has sold goods worth Rs 20,000 to Mr Anand who is also a dealer in Karnataka. The GST rate of such goods is 18% comprising CGST of 9% and SGST of 9%.
So, Mr. Raj will collect Rs 3,600, of which Rs 1,800 goes to the central government, and another Rs 1,800 goes to the Karnataka state government.
[Suggested reading: A Detailed Guide on the Goods & Services Tax]
What is the full form of IGST
Integrated Goods and Services Tax or IGST is a tax levied on all inter-state supplies of goods and services. IGST is applicable on any supply of goods and services in both cases of import and export from India. In IGST, the exports are zero-rated and the tax is shared between the central and state government.
Let’s take another example to understand how it works in an IGST case:
Let’s say, Mr. Kunal, a dealer from West Bengal, sells goods worth Rs 50,000 to Ms Simran in Punjab. The GST rate on such goods is 5% comprising 5% IGST since it is an interstate supply. The centre collects IGST of Rs 2,500.
Calculate various components of GST and the payment due for your goods and services with an online GST calculator.
How are input tax credits adjusted?
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:
- To pay IGST – First IGST credit will be used followed by CGST or SGST as per the taxpayer’s preference
- For paying CGST – Starting from CGST credit and then IGST credit will be used
- 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:
|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
Going to the centre
|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 government and state governments collect CGST, SGST, and IGST.
To pass on the credit of the taxes paid, you will have to issue GST-compliant invoices. 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. You can refer to our GST invoice guide and create GST-compliant invoices using Razorpay Invoices.
If you are interested in more in-depth details about GST, then stay updated with Razorpay Learn.
Frequently Asked Questions
What is the full form of SGST?
SGST stands for State Goods and Services Tax.
What is the full form of IGST?
IGST stands for Integrated Goods and Services Tax.
What kind of tax is GST?
GST is an indirect tax levied on most goods and services sold for domestic consumption.
How do I find my HSN code?
Go to the GST portal homepage < Click on the HSN check box < Select the tax type < Select HSN chapter by code or name < Search HSN code < Select the apt date < Click on ‘search’ < Select the state
Can we find the GST number by name?
No, it is not possible to find the GST number by name for all taxpayers. You can only find the details of GST by name for the list of taxpayers shared by state governments and for businesses who have shared GSTIN on their website.
What is the GST percentage?
The GST council has accommodated over 1300 goods and services under four tax slabs of 5%, 12%, 18%, and 28% under GST.
How many types of SGST are there?
There is only one type of SGST in India. This indirect tax is received by the State in which the goods or services are consumed and not by the state in which the goods are being manufactured.
What is RCM in GST?
Reverse Charge Mechanism or RCM is the process of payment of GST by the receiver instead of the supplier. The registered buyer who has to pay GST has to do self-invoicing for the purchases made. In the case of intra-state purchases, CGST and SGST have to be paid under the reverse charge mechanism (RCM) by the purchaser.
What is IGST in simple words?
IGST is a tax levied on all the Inter-State supply of goods and services and is governed by the IGST Act. IGST is applicable on any supply of goods and services in both cases of import and export from India.
What is the GST number?
GST number is a unique 15 digit identification number assigned to every taxpayer registered under the GST.