The Goods and Services Tax (GST) in India encompasses various forms: CGST, SGST, IGST, and UTGST. The specific type of GST applied depends on whether a transaction occurs within a state (intrastate) or between different states (interstate). This article will explore the definitions, applicability, and illustrative examples for each of these GST components. GST in India operates with four main types—CGST, SGST, IGST, and UTGST—with the applicable charge determined by the nature of the transaction (intrastate or interstate). For intrastate supplies, the Central Government collects CGST, while state governments levy SGST and Union Territories impose UTGST. IGST applies to interstate transactions, imports, and exports, with its revenue subsequently distributed between the Central Government and the consuming state or Union Territory. As a destination-based tax, GST revenue accrues to the state or Union Territory where the goods or services are ultimately consumed. Accurately classifying a supply as either intrastate or interstate is essential for proper GST application and correct Input Tax Credit (ITC) utilization.

Types of Goods and Services Tax in India

In contrast to the previous tax system, which involved multiple taxes like Central Excise, Service Tax, and State VAT, the current Goods and Services Tax (GST) framework consolidates these into a single tax with four main components:

• Central Goods and Services Tax (CGST)
• State Goods and Services Tax (SGST)
• Union Territory Goods and Services Tax (UTGST)
• Integrated Goods and Services Tax (IGST)

Determining the Applicable GST Type

To identify the correct GST type, it is crucial to determine if a transaction is intrastate or interstate. Intrastate transactions involve the supply of goods or services within the same state or union territory, and both CGST and SGST or UTGST are collected. Conversely, interstate transactions, which occur between different states, are subject only to IGST. Using the correct GSTIN is vital for accurate tax component identification. It is important to remember that GST is a destination-based tax, with revenue allocated to the state where consumption occurs, not where manufacturing takes place.

Integrated Goods and Services Tax (IGST) Overview

IGST, or Integrated Goods and Services Tax, applies to all interstate supplies of goods and services, encompassing transactions between two or more states or Union Territories. The IGST Act, 2017, along with its amendments, governs the imposition and collection of this tax. Furthermore, IGST is relevant for both imports into India and exports from India, although exports are generally zero-rated. The revenue generated from IGST is subsequently shared between the Central and State governments.

IGST Calculation Example

For instance, if M/s Rajesh Ltd in Chandigarh sells goods valued at Rs.1,00,000 to Anand Ltd in Dadra & Nagar Haveli & Daman & Diu, and the applicable GST rate is 18% IGST, then the seller must levy Rs.18,000 as IGST. This collected IGST is initially remitted to the Central Government, which then allocates a portion to Dadra & Nagar Haveli & Daman & Diu, assuming it is the final consuming state.

Central Goods and Services Tax (CGST) Details

CGST stands for Central Goods and Services Tax. It is a tax imposed by the Central Government on intrastate supplies of both goods and services, with the revenue collected directly by the Centre. The CGST Act, 2017, along with its subsequent amendments, governs the levy and collection of CGST. For the same intrastate supply, an equivalent amount of SGST is also levied by the respective state government. Section 8 of the CGST Act stipulates that the tax rate for both CGST and SGST on intrastate supplies should not exceed 14% each. Any CGST liability can only be offset using CGST or IGST input tax credit, not SGST.

State Goods and Services Tax (SGST) Details

SGST, or State Goods and Services Tax, is a tax imposed on intrastate supplies of goods and services by the state government where the consumption occurs. Each state's SGST Act, 2017, such as the Telangana GST Act, governs its collection and levy, subject to amendments. Following the implementation of SGST, various state-level taxes like VAT, entertainment tax, and luxury tax were subsumed. SGST liabilities can only be offset against SGST or IGST input tax credit, not CGST.

CGST and SGST Application Example

When a seller transacts with a buyer within the same state, for example, Chhattisgarh, both CGST and SGST are applicable. This arrangement reflects a mutual agreement between the Central and state governments for combining their tax levies and sharing the revenue proportionally. For instance, if M/s Rajesh Ltd, a dealer in Chhattisgarh, sells goods worth Rs.10,000 to Vijay Ltd, also in Chhattisgarh, with a combined GST rate of 18% (9% CGST and 9% SGST), the dealer would collect a total of Rs.1,800. This amount is deposited via the GST portal, with Rs.900 allocated to the Central Government and Rs.900 to the Chhattisgarh Government.

Union Territory Goods and Services Tax (UTGST) Explained

UTGST, or Union Territory Goods and Services Tax, is comparable to SGST but applies to intrastate supplies of goods and services within Union Territories that do not possess their own legislative assemblies. This tax is regulated by the UTGST Act, 2017, including any amendments, and is levied in conjunction with CGST. The process for utilizing Input Tax Credit (ITC) for UTGST mirrors that of SGST: UTGST credit must first be applied against UTGST liability. Any leftover credit can then be used to offset IGST liability. UTGST is relevant for transactions in Union Territories such as Ladakh, Andaman and Nicobar Islands, Chandigarh, Dadra & Nagar Haveli and Daman & Diu, and Lakshadweep. Notably, Union Territories like Delhi, Jammu & Kashmir, and Puducherry operate under SGST laws due to having their own legislatures.

Rationale Behind SGST, CGST, and IGST

As a federal nation, India's Constitution grants both the Central and State governments the authority to impose and collect taxes. Both levels of government have specific duties, necessitating tax revenue, which is now partly generated through GST. The simultaneous imposition of GST by the Centre and states, structured into these three types, facilitates cross-utilization of input tax credits, thereby upholding the principle of 'One Nation, One Tax'.

Determining GST Applicability

To ascertain whether CGST, SGST, or IGST is applicable to a taxable transaction, one must first determine if the supply is intrastate or interstate.

• An intrastate supply occurs when both the supplier's location and the place of supply (buyer's location) are within the same state. For such transactions, the seller collects both CGST and SGST from the buyer. CGST is remitted to the Central Government, while SGST is deposited with the respective State Government.

• An interstate supply takes place when the supplier's location and the place of supply are in different states. This classification also includes exports, imports, and supplies made to or by Special Economic Zone (SEZ) units. In an interstate transaction, the seller is required to collect IGST from the buyer.

Input Tax Credit (ITC) Offset Process

The CGST Rules outline the specific method for adjusting Input Tax Credit (ITC) of CGST, SGST, and IGST against corresponding tax liabilities. Adhering to these rules for ITC utilization is critical to prevent future penalties. Consider a scenario: Manufacturer A in Maharashtra sells goods worth Rs.10,000 to Dealer B, also in Maharashtra. Dealer B then resells these goods to Trader C in Rajasthan for Rs.17,500. Finally, Trader C sells them to end-user D in Rajasthan for Rs.30,000. Assuming CGST and SGST rates are 9% each, and IGST is 18%.

• The sale from Manufacturer A to Dealer B is an intrastate transaction within Maharashtra, attracting 9% CGST and 9% SGST.
• Dealer B's sale to Trader C in Rajasthan constitutes an interstate transaction, thus subject to 18% IGST.
• Trader C's subsequent sale to end-user D within Rajasthan is another intrastate transaction, hence 9% CGST and 9% SGST apply.

GST Collection Mechanism

Input Tax Credit (ITC) for IGST must be utilized in a specific sequence:

• Firstly, it is used to offset IGST liability.
• Subsequently, any remaining IGST credit can be applied to either CGST or SGST liabilities, based on the taxpayer's choice.

As a consumption-based tax, GST revenue is allocated to the state where the goods are ultimately consumed, not the state where they are sold. In the previous example, if goods were consumed in Rajasthan, then Rajasthan and the Central Government should each receive Rs.2,700 (9% of Rs.30,000). Consequently, Maharashtra, as the exporting state, would transfer its SGST credit of Rs.900 (which was used to pay IGST) to the Centre. The Central Government would then transfer Rs.450 of IGST to Rajasthan, the importing state. This illustration highlights the necessity of the SGST, CGST, and IGST structure. Together, these three taxes fulfill the dual objectives of GST:

• 'One Nation, One Tax,' ensuring that credits for taxes paid on all purchases are available.
• A 'Dual Tax System,' guaranteeing revenue streams for both the Central and State governments.

Key Differences Between GST Types

The table below outlines the primary distinctions among the various GST components: