Understanding the Various Types of GST in India: SGST, CGST, IGST, and UTGST

Goods and Services Tax (GST) collected in India falls into several categories: Central GST (CGST), State GST (SGST), Integrated GST (IGST), and Union Territory GST (UTGST). The specific type of GST applied depends on whether a transaction occurs within a single state (intrastate) or across state borders (interstate). This article will explore the definitions, applicability, and examples of each GST component.

Essential Points

• Indian GST comprises four main types: CGST, SGST, IGST, and UTGST, with applicability determined by the nature of the transaction (intrastate or interstate).
• For intrastate supplies, the Central Government collects CGST, while state governments and union territories collect SGST and UTGST, respectively.
• Interstate transactions, imports, and exports are subject to IGST, which is then distributed between the central government and the consumer's state or union territory.
• GST operates as a destination-based tax, meaning tax revenue is allocated to the state or UT where the goods or services are ultimately consumed.
• Accurate classification of supply as intrastate or interstate is vital for correct GST application and efficient Input Tax Credit (ITC) utilization.

Different Forms of GST in India

The Goods and Services Tax (GST) framework in India, unlike previous multiple taxation systems (such as Central Excise, Service Tax, and State VAT), consolidates various levies into a single tax with four primary components:

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

How to Ascertain the Appropriate GST Type?

When goods or services are supplied within the geographical boundaries of a single state or union territory, recognized as intrastate transactions, both Central Goods and Services Tax (CGST) and State/Union Territory Goods and Services Tax (SGST/UTGST) are levied. Conversely, if the supply of goods or services occurs between different states, termed interstate transactions, only Integrated Goods and Services Tax (IGST) is applied.

The accurate identification of the correct GSTIN is crucial for determining the applicable tax components. It is important to note that GST is a consumption-based tax. This means the revenue accrues to the state where the goods are consumed, rather than the state where they are produced.

Integrated Goods and Services Tax (IGST) Overview

IGST, or Integrated Goods and Services Tax, is a levy applied to all interstate transactions involving goods and/or services or across two or more states/Union Territories. The collection and imposition of IGST are governed by the IGST Act, 2017, and subsequent amendments.

Furthermore, IGST is applicable to both the import of goods and/or services into India and their export from India, though exports are typically zero-rated. The tax collected as IGST is subsequently shared between the Central Government and the respective State Governments.

IGST Calculation Example

Consider a scenario where M/s Rajesh Ltd from Chandigarh sells goods valued at Rs.1,00,000 to Anand Ltd in Dadra & Nagar Haveli & Daman & Diu. Assuming a GST rate of 18%, this transaction would specifically attract an 18% IGST. Consequently, the seller must charge Rs.18,000 as IGST. This amount is initially directed to the Central Government and is later distributed between the Centre and Dadra & Nagar Haveli & Daman & Diu, if it is the final consuming region.

Central Goods and Services Tax (CGST) Details

CGST stands for Central Goods and Services Tax. This tax is imposed by the Central Government on intrastate supplies of both goods and services and is collected for its revenue. The levy and collection of CGST are regulated by the provisions of the CGST Act, 2017, as amended periodically.

Alongside CGST, an equivalent amount of State Goods and Services Tax (SGST) is also levied on the same intrastate supply, but this component is governed by the specific state government. Section 8 of the CGST Act specifies that taxes are levied on all intrastate supplies of goods and/or services, with the tax rate not exceeding 14% for each component. Any tax liability under CGST can only be offset against CGST or IGST input tax credit, not against SGST.

State Goods and Services Tax (SGST) Details

SGST refers to State Goods and Services Tax. Under the GST framework, an equivalent amount of SGST is levied by the specific state government on intrastate supplies of both goods and services, applying to the state where the product is consumed.

Therefore, the imposition and collection of SGST are governed by the respective state’s SGST Act, 2017, as amended from time to time (e.g., the Telangana GST Act). Following the introduction of SGST, various state taxes like Value Added Tax, entertainment tax, luxury tax, and entry tax were subsumed into SGST. Any tax liability incurred under SGST can be offset only against SGST or IGST input tax credit, not against CGST.

CGST and SGST Example

If a seller in Chattisgarh sells a product to a buyer within the same state, for instance, to Vijay Ltd in Chattisgarh, both CGST and SGST will be applicable. This arrangement reflects an agreement between the Central and state governments to combine their levies and share the revenue proportionally.

Suppose M/s Rajesh Ltd, a dealer in Chattisgarh, sells goods worth Rs.10,000 to Vijay Ltd in the same state. With an 18% GST rate, comprising 9% CGST and 9% SGST, the dealer collects 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 Chattisgarh Government.

Union Territory Goods and Services Tax (UTGST) Overview

UTGST, or Union Territory Goods and Services Tax, functions similarly to SGST, which is levied by state governments on intrastate supplies of goods and services. UTGST is imposed by Union Territories that do not possess their own legislatures. This tax applies to the supply of goods and services within a Union Territory and is governed by the UTGST Act, 2017, with subsequent amendments, and is levied concurrently with CGST. The input tax credit (ITC) utilization order for UTGST mirrors that of SGST: UTGST ITC should first be used against UTGST liability, and any remaining balance can be used to offset IGST liability.

UTGST is applicable in Union Territories such as Ladakh, Andaman and Nicobar Islands, Chandigarh, Dadra & Nagar Haveli and Daman & Diu, and Lakshadweep. It is important to note that Delhi, Jammu & Kashmir, and Puducherry, having their own legislatures, fall under SGST law.

Rationale Behind SGST, CGST, and IGST

India operates as a federal nation, where both the Central and State governments are constitutionally empowered to levy and collect taxes. Both levels of government have distinct responsibilities that necessitate tax revenue, including GST.

The simultaneous imposition of GST by both the Centre and states, structured into these three types, aims to enable taxpayers to claim cross-credits. This system supports the principle of "One Nation, One Tax" while ensuring that both the Central and State governments secure their respective revenues.

Determining GST Applicability

To ascertain whether Central Goods & Services Tax (CGST), State Goods & Services Tax (SGST), or Integrated Goods & Services Tax (IGST) applies to a taxable transaction, it is essential to determine if the supply is intrastate or interstate.

• Intrastate supply of goods or services occurs when the supplier's location and the place of supply (i.e., the buyer's location) are within the same state. In such intrastate transactions, the seller collects both CGST and SGST from the buyer. CGST is deposited with the Central Government, while SGST is deposited with the respective State Government.
• Interstate supply of goods or services happens when the supplier's location and the place of supply are in different states. This also includes the export or import of goods or services, or supplies made to or by a Special Economic Zone (SEZ) unit, which are also considered interstate transactions. For interstate transactions, the seller collects only IGST from the buyer.

Input Tax Credit (ITC) Offset Procedure

The CGST Rules outline the mechanism for adjusting Input Tax Credit (ITC) for CGST, SGST, and IGST against corresponding tax liabilities. Adhering to these rules for accurate ITC utilisation is critical to prevent future penalties.

Let's examine an example:

• Manufacturer A in Maharashtra sells goods worth Rs.10,000 to Dealer B in Maharashtra.
• Dealer B then resells these goods to Trader C in Rajasthan for Rs.17,500.
• Trader C finally sells to end-user D in Rajasthan for Rs.30,000.
• Assume the applicable tax rates are CGST = 9%, SGST = 9%, and IGST = 18%.

Since Manufacturer A sells to Dealer B within Maharashtra, it is an intrastate sale, attracting CGST at 9% and SGST at 9%.

Dealer B (Maharashtra) sells to Trader C (Rajasthan), making it an interstate sale subject to IGST at 18%.

Trader C (Rajasthan) sells to end-user D, also in Rajasthan. This is an intrastate sale, so CGST at 9% and SGST at 9% apply.

GST Collection Mechanism

*** Any IGST credit must first be utilized in the following sequence:

• Initially, offset against IGST liability.
• Subsequently, it can be used to offset either CGST or SGST liability, based on preference.

GST is a consumption-based tax, meaning the state where the goods are consumed (Rajasthan in the previous example) receives the GST revenue. Therefore, Maharashtra (the exporting state) should not receive any taxes. Rajasthan and the Central Government should each receive Rs.2,700 (30,000 * 9%).

Consequently, Maharashtra (the exporting state) is required to transfer the SGST credit of Rs.900 (which was used for IGST payment) to the Centre.

In turn, the Central Government will transfer Rs.450 of IGST to Rajasthan (the importing state).

This example illustrates the necessity of the three tax types: SGST, CGST, and IGST. Together, they fulfill two core objectives of GST:

• One Nation, One Tax: Ensuring all taxes on purchases are available as credits.
• Dual Tax System: Guaranteeing revenue for both the Central and State governments.

Distinctions Between GST Types