The State Goods and Services Tax (SGST) is an essential element within India's Goods and Services Tax framework. The GST legislation brought about a transformative approach to indirect tax management, administration, and adherence across the nation. Gaining a clear understanding of GST's foundational aspects enables businesses to effectively handle their tax obligations and meet regulatory standards. This article explores SGST, detailing its application and advantages when compared to the tax systems that existed prior to GST implementation.

What is SGST?

The acronym SGST stands for State Goods and Services Tax. It forms a crucial part of the overall GST rate, levied alongside the Central Goods and Services Tax (CGST), when goods or services are supplied within a single Indian state. This tax is imposed and collected by the respective state governments, serving as revenue from taxable goods and services.

SGST Applicability

The State Goods and Services Tax is levied on the provision of goods, services, or a combination of both, exclusively within the borders of a single state. For instance, if a vendor in Kolkata sells 100 kg of cereals for Rs.100 to a customer within West Bengal, and the total GST rate is 12%, then a 6% SGST would be applied to the transaction value, alongside an equal 6% CGST. The West Bengal government would receive this SGST revenue. Conversely, SGST does not apply when the same Kolkata vendor supplies goods to a consumer located outside West Bengal, such as in Ranchi or Bhubaneswar.

SGST is not applicable in the following situations:

• Interstate transactions: Integrated GST (IGST) is applied when goods or services are supplied between different states.
• Exempt goods and services: These categories are specifically excluded from GST charges.
• Imports and Exports: IGST applies to goods and services acquired from or supplied to locations outside India.
• Suppliers without mandatory GST registration: Businesses with an annual turnover below Rs.40 lakhs (or Rs.20 lakhs for services) are not required to register for GST. Consequently, SGST is not mandatorily imposed on supplies made by such entities.

SGST Rate Structure

The applicable SGST rates differ based on the category of goods and services, following a structured system:

Features of SGST

In accordance with the CGST Act, the State Goods and Services Tax possesses several distinct characteristics:

• Only a state government is authorized to impose SGST on transactions occurring within its own state.
• The tax revenue generated from SGST is deposited into the accounts of the respective state governments.
• The management, oversight, and compliance procedures for SGST are governed by specific state SGST acts, such as the Bihar Goods and Services Tax Act, 2017, or the Gujarat Goods and Services Act, 2017.
• While state legislatures can modify their respective SGST acts, the fundamental framework, including taxable events, valuation, and classification, aligns with the Central GST Act, 2017.

How to Calculate SGST?

To determine the SGST applicable to a transaction, one must know the item's selling price and its corresponding SGST rate. The computation formula is:

SGST amount = Selling price × SGST Rate

For instance, if a laptop is purchased in Kolkata for Rs.60,000, and the total GST rate is 18%, this represents an intra-state transaction. The GST rate is split evenly between the central and state governments. Therefore, the SGST rate would be 9% (half of 18%), with the remaining 9% being CGST.

Following this example and formula:

• SGST Rate: 9%
• Selling Price: Rs.60,000
• SGST amount: Rs.60,000 × 9% = Rs.5,400
• CGST amount: Rs.60,000 × 9% = Rs.5,400
• Total GST amount: SGST + CGST = Rs.10,800
• Total sales value of the laptop: Rs.60,000 + Rs.10,800 = Rs.70,800

Benefits of SGST

As a vital component of GST, the State Goods and Services Tax provides multiple advantages over the previous intricate indirect tax systems. These benefits include:

• Streamlined Indirect Taxation: Prior to GST, India had a fragmented system of indirect taxes, including VAT, CST, excise duty, and service tax, which varied by state. SGST, integrated into the GST framework, has unified and simplified indirect taxation across all states.
• Uniformity and Clarity in Tax Framework: The existence of numerous indirect taxes before GST often led to complexities in tax computation. SGST introduces a consistent rate structure, eliminating these complications.
• Enhanced Tax Revenue for State Governments: The intricate and multi-layered indirect tax structures of the pre-GST era contributed to tax evasion, negatively impacting state government revenues. SGST has optimized and improved the collection of taxes for state governments.
• Simplified Input Tax Credit Claims: For intra-state transactions, SGST has facilitated an easier process for registered businesses to claim Input Tax Credits (ITC) on their procurements for business.

How can businesses claim Input Tax Credit (ITC) on SGST?

Under the GST Act, businesses can utilize Input Tax Credit (ITC) to subtract the indirect taxes already paid on their production inputs from their overall sales tax liability.

Key requirements for claiming ITC on SGST include:

• The claiming entity must hold valid GST registration.
• A legitimate tax invoice from the input supplier is essential, detailing the applicable SGST rate, the total SGST paid, the HSN code for the supplied items, and other GST mandates.
• Submitting GST returns, such as GSTR-3B, within the specified deadlines for the relevant tax period is mandatory.
• SGST ITC can be used to offset SGST or IGST liabilities.
• However, SGST input tax credit cannot be used to discharge CGST liability.

The official GST portal processes these claims by automatically matching them with the supplier's filed tax records.

For illustration, imagine ABC Ltd, a furniture maker in Patna, Bihar, bought plywood for Rs.1,00,000, incurring an SGST of Rs.9,000 at a 9% rate. After manufacturing, ABC Ltd sells a table and chair set for Rs.1,50,000, resulting in an SGST liability of Rs.13,500 (at 9%).

• The company is eligible to claim the Rs.9,000 SGST paid on the plywood as a deduction against its SGST liability from selling the furniture set.
• Consequently, the net SGST liability will be Rs.4,500 (Rs.13,500 - Rs.9,000).

Strategic utilization of ITC helps businesses lower their GST payment obligations and enhance cash flow. Additionally, businesses have the option to carry forward any excess ITC to future tax periods.