India's Goods and Services Tax (GST) framework, implemented on July 1, 2017, includes a crucial component known as the Central Goods and Services Tax (CGST). This unified tax system superseded various previous indirect taxes imposed by both central and state authorities. This article will examine CGST in detail, covering its main characteristics, advantages, and calculation methods.

What is Central Goods and Services Tax (CGST)?

CGST, which stands for Central Goods and Services Tax, represents an indirect tax levy within India's Goods and Services Tax (GST) regime.

CGST Applicability

The Central Goods and Services Tax (CGST) is applicable to transactions occurring within a single state, known as intrastate supplies. For these transactions, both CGST and State Goods and Services Tax (SGST) are collected by the government. The Central Government receives the revenue generated from CGST, while individual state governments receive the revenue from SGST.

CGST Rate Structure

Below is a table detailing the CGST rates and the items to which they apply:

| CGST Rate | Applicable Items | |---| | 0% | Essential goods and services such as unprocessed cereals, fresh fruits and vegetables, fresh and chilled meat and fish, salt, bread (when not served for consumption), most healthcare services, etc. | | 5% | Basic necessities such as edible oils, sugar, tea, coffee (except instant), domestic LPG, apparel and clothing not exceeding Rs.1000 per piece, electric vehicles, etc. | | 12% | Goods and services such as butter, ghee, fruit juices, almonds, packed coconut water, geometry boxes, footwear not exceeding Rs.1000 per pair, etc. | | 18% | Goods such as toothpaste, soaps, ice cream, chocolates, pasta, computer monitors not exceeding 32 inches, printers, most services, refrigerators, etc. | | 28% | Goods such as luxury cars, high-end motorcycles, air conditioners, cigarettes, etc. | | 3% | Precious metals such as gold and silver | | 0.25% | Diamonds, precious and semi-precious stones |

You can find all the latest changes along with a detailed list here.

Features of CGST

1. When goods or services are transacted within the same state, CGST constitutes the portion of indirect tax allocated to the central government.
2. The GST framework enables taxpayers to claim credit for taxes paid on inputs against their output tax liability, thereby mitigating cascading effects and reducing overall costs.
3. The CGST legislation operates on a self-assessment model, requiring taxpayers to calculate their own tax obligations due to the government.
4. Nevertheless, the law includes provisions for CGST audits to verify businesses' adherence to established regulations.
5. Should defaults occur, the CGST law empowers the government to collect outstanding taxes via specific demand and recovery procedures.
6. To enforce compliance within the system, fines and penalties are levied for instances such as delayed return filings or late tax payments.

CGST Rules

After reviewing CGST features, taxpayers should also consult the CGST rules, which are available on the official CBIC website: CGST Rules.

The following table contains some of the important CGST rules.

How to Calculate CGST

Here is the formula to calculate CGST: CGST = (Taxable value of goods or services × CGST rate) ÷ 100

• Taxable value of goods or services: The base price on which tax is levied.
• CGST rate: The percentage rate applicable for the goods/services.

Suppose you sell a product with a base price of ₹10,000, and the applicable GST rate is 18% (split into 9% CGST and 9% SGST).

1. Taxable value: ₹10,000
2. CGST = (₹10,000 × 9) ÷ 100 = ₹900
3. SGST = (₹10,000 × 9) ÷ 100 = ₹900

Total Price = ₹10,000 + ₹900 (CGST) + ₹900 (SGST) = ₹11,800

Benefits of CGST

CGST has multiple benefits, such as:

• CGST unifies various central taxes, simplifying compliance for businesses.
• The Input Tax Credit (ITC) mechanism allows businesses to offset taxes paid on inputs against their final tax liability.
• The fully digitized nature of the GST law streamlines tax filing procedures, enhancing transparency for all stakeholders.
• Uniform tax rates nationwide foster equitable competition among businesses.
• A simplified tax framework promotes greater adherence to tax laws and contributes to national economic development.

Claiming Input Tax Credit (ITC) on CGST Paid

The Input Tax Credit (ITC) system within GST regulations significantly lowers tax obligations for businesses by allowing them to offset CGST paid on purchases against their tax liabilities on sales.

Below is a brief explanation:

Eligibility for Input Tax Credit

1. Businesses must possess a valid Goods and Services Tax Identification Number (GSTIN). (GST registration)
2. The taxpayer needs to hold appropriate documentation, such as a tax invoice or debit note.
3. The recipient must satisfy all criteria for input tax credit eligibility as stipulated by Section 16 of the CGST Act.
4. The supplier is required to file their tax returns and properly remit the collected taxes to the government.
5. The goods or services acquired must be exclusively utilized for the recipient's business operations.
6. Input Tax Credit is not permissible for personal expenditures or blocked credits, as outlined in Section 17(5) of the CGST Act.

Steps to Claim ITC

1. Reconcile input tax credit data from accounting records with the automatically generated GSTR-2B statement.
2. Report all eligible ITC for the relevant tax period by filing the GSTR-3B return.
3. Utilize the available ITC to decrease the CGST liability, paying any outstanding balance in cash.
4. Preserve all purchase invoices and payment proofs for potential audits.

Key Restrictions

• ITC for a tax period must be claimed by the earlier of November 30th or the date for filing the annual return.
• When supplies include both taxable and exempt categories, input tax credit should be claimed proportionately.

CGST Example

Let’s consider a retailer who purchases goods for ₹1,00,000 and subsequently sells them for ₹1,50,000 to a customer within the same state. Here’s how CGST applies to this transaction:

• Purchase price of goods: ₹1,00,000 (CGST @9% = ₹9,000).
• Sale price of goods: ₹1,50,000 (CGST @9% = ₹13,500).
• Input tax credit set off: ₹9,000
• Balance CGST liability payable in cash: ₹13,500 (output tax) - ₹9,000 (input tax) = ₹4,500.