What Is SGST CGST & IGST?

What Is SGST CGST & IGST? One major point that distinguishes GST from previous indirect taxes is that GST is a destination-based tax. The burden of the tax is finally imposed on the person consuming the goods or the services. Hence, the tax is received by State in which the goods or services are consumed and not by the state in which such services were provided or goods are manufactured, produced, sold or re-sold. In case the goods are exported, the seller (Supplier) of the goods or services is exempted from paying tax under the GST regime.

The most important reason behind the implementation of GST is the centralisation of taxes and removing the cascading effects i.e. applying the tax on the amount of tax. This gives an introduction to the concept of CGST, SGST, and IGST. Let us discuss these 3 words: Q1. What is Central Goods & Services Tax (CGST)?

CGST or Central Goods & Services Tax is applicable on the Intrastate (within the state) supply of goods and services. The tax is levied & governed by Central Government through the CGST Act, 2017. In simple words, it can be considered as the Central Government’s share of revenue on the supply of goods or services.

Q2. What is State Goods & Services Tax (SGST)?

SGST or State Goods & Services Tax is also the tax applicable on the Intrastate (within the state) supply of goods and services. However, this levied & governed by the respective State Government through SGST Act, 2017. It is the respective State government’s share of revenue on each supply.

Note 1: It is important to note that CGST & SGST both will be levied on every intrastate supply of goods & services. The rates of both the taxes are always similar and are together applied to the amount of supply. This means that both the Central and the State governments will levy an appropriate proportion of tax and share revenue between each other. However, as prescribed by section 8 of the GST Act, taxes be levied on all Intra-State supplies of goods and/or services but in no case, shall the rate of tax shall exceed 14%, each.

Now let us understand CGST and SGST with an example: Mr A, a dealer of Maharashtra supplies goods to Mr B, another dealer of Maharashtra worth Rs. 1,00,000. The applicable rate of GST on the said goods is 18%. This 18% will comprise of 9% CGST & 9% SGST. Thus, Mr A will collect Rs. 18,000 (18% of Rs. 1,00,000) as GST from Mr B of which Rs. 9000 will be CGST which will go to Central Government & other Rs. 9000 will be SGST which will go to the Maharashtra Government.

Q3. What is Integrated Goods & Services Tax (IGST)?

IGST or Integrated Goods and Services Tax is a tax levied on Inter-State (between 2 or more states) supplies of goods and/or services. The tax is levied by Central Government and is governed through the IGST Act, 2017. It is important to note that IGST is also applicable to any supply of goods and/or services which are either imported into India and export from India.

Note 2: Any tax liability obtained under CGST can only be set off first against CGST input tax credit and then against IGST input tax credit only but it can’t be set-off against SGST. Similarly, tax liability obtained under SGST can only be set off first against SGST input tax credit and then against IGST input tax credit only but it cannot be set-off against CGST. Note 3: It is important to note that the tax collected under the IGST head will be equally shared by the Central and State Government. Also, under the IGST, exports are zero-rated.

It means the rate of IGST on exported goods is Zero.

Now let us understand IGST with an example: Consider that Mr A from Maharashtra had supplied goods to Mr B in Gujarat worth Rs. 1,00,000. The applicable rate of GST on the goods involved is 18%. Now since the supply is taking place on inter-state (between 2 or more states) basis, the total 18% of GST comprises of IGST only. Thus, Mr A will charge Rs. 18,000 as IGST from Mr B and it will go to the Central government.

This was an easy and most simplified method of understanding CGST, SGST & IGST. Why there is a split in GST as 3 different taxes; SGST, CGST, and IGST? India is a federal country and government in India operates in parts where Central and state governments, both have their separates rights and duties. Both the Governments have separate responsibilities to perform towards the citizens of India. To fulfil these responsibilities, they need money. The constitution of India has assigned the powers to both, the Centre and the States governments, to levy and collect taxes. This is why the Centre and States are simultaneously levying GST. Further, ensuring “One Nation, One Tax” agenda of GST, taxpayers have the facility to take the credit against each other (CGST, SGST, IGST).

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