Passed in the Indian Parliament on 29 March 2017, the Goods and Service Tax Act came into effect on 1 July 2017. The GST tax that has replaced a number of indirect taxes was formed in order to streamline the country’s taxation process and bring the needed transformations. Bringing the indirect taxes under its umbrella, the implementation of GST has helped in eliminating the cascading tax effect and also in decreasing a large number of compliances that an individual earlier had to consider. As the whole country is now under one system of tax, GST has brought uniformity in tax rates, and thus simplified the online process of GST registration. 

Let us take a look at the components and the different types of GST in detail: 

What is GST?

Goods and services tax is a comprehensive and destination-based indirect tax levied by the Government of India on the supply of all the goods and services. Being a tax with a wide scope, it has encompassed almost all the indirect taxes like VAT, service tax, excise duty, etc to make taxpaying hassle-free for all. GST is also a destination-based tax as it is claimed from the place of consumption rather than the place of origin of the goods. 

GST is divided into several components to save an individual from paying several taxes and also taking care of the revenues of all the governments (State and Central). Therefore, when a consumer buys a product he pays the price which is inclusive of the GST, which in turn is then paid by the supplier to the respective governing bodies.

What are the differences between types of GST?

Based on the type of transaction made, (intra-state and inter-state) GST is divided into four components which constitute all types of GST. This table illustrates the different types of GST and the differences among their components:

Types of GST 

Authority responsible for the collection

Priority of Tax credit use

Applicable Transactions

Benefitting Authority

CGST

Central Government 

CGST, IGST

Intra-state transfers (within the same state)

Central Government

SGST

State Government

SGST, IGST

Intra-state transfers (within the same state)

State Government

UGST

Union Territory Government

UTGST, IGST

Intra-union territory transfer (within a union territory)

Union Territory Government

IGST

Central government

IGST, CGST, SGST

Inter-state transfer ( from one state to the other)

State Government and Central Government 

Current application of the different types of GST:

To understand clearly the applications of all the different types of GST some examples are given in the form of a table below:

CGST

SGST

IGST

UTGST

Case

Shruti Jaiswal, a supplier from Himachal Pradesh had sold goods to Ayush Singh, a consumer from the same state, worth INR 10,000. 

Shruti Jaiswal, a supplier from Himachal Pradesh had sold goods to Ayush Singh, a consumer from the same state, worth INR 10,000.

Rohit Singh is a supplier from Bengaluru who had sold goods to Raman Naik a consumer from Kerela, worth INR 15,000.

Mayank Sharma is a supplier from Pudducherry who had sold goods to Shashi Reddy, a consumer from the same place, worth INR 5000.

Types of GST applicable

Applicable GST would be CGST and SGST with equal weightage.

Applicable GST would be CGST and SGST with equal weightage.

Applicable GST would be IGST

Applicable GST would be UTGST and CGST with equal weightage

Calculation of the amount

Assuming the rate @ 18%, both the CGST and SGST would be charged at 9% each.

The total amount to be paid by the consumer would be INR 11800, wherein the GST amount is INR 1800.

The Central Government of India would earn a revenue of INR 900 on this transaction.

Assuming the rate @ 18%, both the CGST and SGST would be charged at 9% each.

The total amount to be paid by the consumer would be INR 11800, wherein the GST amount is INR 1800.

The State Government of Himachal Pradesh would earn a revenue of INR 900 on this transaction.

Assuming the rate @18%, IGST would be calculated:

The total amount to be paid by the consumer would be INR 17,700, wherein the GST amount is INR 2,700.

The IGST would be collected by the Central Government of India.

Assuming the rate @ 18%, both the CGST and UTGST would be charged at 9% each.

The total amount to be paid by the consumer would be INR 5,900, wherein the GST amount is INR 900.

The government of Puducherry would earn a revenue of INR 450 from the above transaction.

What is IGST or Integrated Goods and Services Tax?

Governed by the IGST Act, Integrated Goods, and Services Tax is a type of GST levied on inter-state supply of goods and/or services as well as import and exports. The Central Government collects this tax and then further divided into the respective states. 

  • The exports under IGST would be zero-rated,
  •  All the collections made through IGST shall be shared by both the Central and the State Governments.

For example, Mr Sanjeev, a businessman from Bihar sold his goods to Mr Anshuman in Karnataka worth INR 1,800. If the rate of GST applicable is 18%, the tax collected by the Central Government on these goods would be INR 1,800 which would further be shared between the State and the Central Government.

What is SGST? Or state goods and services tax?

Governed by the SGST Act, the State Goods, and Service Tax is a part of the GST regime that is applied on the intra-transfer state transfer of goods and services. Two types of taxes are levied on the purchase and supply of goods happening within the same state, one being CGST and the other SGST. The CGST tax is collected by the Central Government whereas the SGST is collected by the State Government. Taxes like purchase tax, octroi, VAT, luxury tax, etc are now included in the SGST.

For example, Mr Sanjeev from Bihar has sold his goods to Mr Prashant in Bihar itself, worth INR 10,000. The total tax levied on this purchase would be 18%, which would be equally divided into CGST and SGST. in this case, the total tax collected would be INR 1,800, wherein INR 900 will go to the Central Government and the other 900 would go to the Bihar government.

What is CGST or central goods and services tax?

Governed by the CGST Act, the central goods and services tax is a part of the GST regime that is applied to the intra-state transfer of goods and services. Apart from the SGST which is collected by the respective State Government, CGST is solely charged by the Central Government. Both these taxes are applicable in case any intra-state transfer of goods happens and therefore, both of these governments decide the rate on which tax is to be collected. Under section 8 of the GST Act of India, it has been stated that there should be no hike than 14% (each) for both of these taxes.

What is UTGST? Or Union territory goods and services tax?

Governed by the UTGST Act, the Union Territory Goods, and Services Tax is a tax similar to the state goods and services tax (SGST) that is applied on the intra-union territory transfer of goods and services. The UTGST is collected by the Union Territory governments along with the CGST in case any transfer of goods takes place in the union territories like Andaman and Nicobar Islands, Daman Diu, Dadra, and Nagar Haweli, and Chandigarh. The union territories like Puducherry and Delhi fall under SGST rather than UTGST. 

What are the components of GST and why is it split?

India is a federal country and has always worked under one entity, but there are some powers and responsibilities that are allocated to the State Governments too. To fulfill the requirements of the state and the nation, funds are essential. 

In order to save people from the hassles of several indirect tax liabilities, GST was introduced with a motto of ‘one nation, one tax’. Listed below are the components of GST:

  1. CGST: Central goods and services tax levied by the Central Government on all intrastate transactions of goods and services.
  2. SGST: State goods and services tax is levied by the State Government on all the intra-state transactions happening in the respective state. Both SGST and CGST are collectively applied on the transactions with equal weightage.
  3. IGST: Integrated goods and services tax is a tax levied on all the inter-state transactions of goods and services and imports and exports. This tax is collected by the Central Government and then divided equally to the respective states.
  4. UTGST: Union Territory goods and services tax is just a counterpart of SGST for the union territories of India. This tax, similarly to the SGST is collected along with the CGST on all the intra-union territory transfers of goods and services.

As GST was introduced for the ease of individuals by exempting them to pay numerous indirect taxes, it was also necessary to ensure the states are getting the required funds. Splitting GST into these components now makes sure both the State and the Central Government are availing equal revenues at the same time. 

Who is liable to pay GST?

Goods and services tax is the inclusion of all earlier indirect taxes like VAT, excise duty, service tax, etc to be paid for all the business transactions made in India. 

The following are the categories of people who are liable to pay GST in India:

  1. People who are registered under GST and are dealing with taxable goods.
  2. People registered under GST and are required to pay under the reverse charge mechanism.
  3. People registered under GST and are required to deduct tax at source (TDS).
  4. GST registered E-commerce operators.
  5. GST registered E-commerce operators who are required to collect tax at source (TCS)
  6. Individuals who work for or on behalf of manufacturers to supply goods and services (agents).

What are the goods that are exempted from the payment of GST?

Like all other taxes, some goods are exempted from the payment of GST in India. Read below to find out a list of goods and services that do not have to pay the liability:

  1. Food items like fruits, vegetables, meat, fish, and others
  2. Raw materials like handloom fabrics, unprocessed wool, cotton for khadi yarn, raw silk, jute fibres, etc.
  3. Instruments or tools for agriculture, tools for the use of differently-abled people, etc.
  4. Miscellaneous items like vaccines, newspapers, journals, maps, books, non-judicial stamps, articles of paper pulp, etc.

How are input tax credits adjusted and how to offset liability in GST?

To have a better understanding of how are input tax credits adjusted and how to offset liability in GST, let us take this example, 

A manufacturer from Maharashtra, Vinod Desai sells goods worth INR 10,000 to a dealer Mukul Anand in Maharashtra itself. Mukul Anand then sells these goods to a trader Harish Kumar in Rajasthan for INR 17,500. Harish Kumar then sells the goods to an end-user in Rajasthan for INR 30,000. 

Suppose that the goods are sold at the following rates:

  • CGST 9%
  • SGST 9% 
  • IGST = 9% + 9%

Since Vinod Desai sold the goods in Maharashtra itself, the intra-state sale will be levied with CGST at 9% and SGST at 9%. When Mukul Anand from Maharashtra sells them to Harish Kumar who is in Rajasthan, it becomes an inter-state sale with IGST at 18%. Harish Kumar then made an intra-state sale to an end-user so CGST at 9% and SGST at 9% were levied. 

As GST is a consumption-based tax, the goods that were consumed in Rajasthan will receive GST. Similarly, the goods that were sold in Maharashtra would not receive any taxes. So, Rajasthan and Central Government would receive 9% of INR 30,000 which comes to INR 2,700 each. Maharashtra which is the exporting state will transfer SGST of INR 900 to the Centre. The Central Government will transfer INR 450 IGST to Rajasthan which is the importing state.


FAQ’s

    Yes, there are a lot of advantages to having GST being issued in India.

    • It is a comprehensive indirect tax applicable on the inter and intra-state transactions of goods and services.
    • Small businesses can avail the benefit of tax rebate through the ‘composition scheme’
    • The whole process of registering for GST and filing it can be done easily in online mode.
    • It has significantly helped the logistics department of India to improve its efficiency

    The GST has replaced a lot of taxes, some of the most important ones are:

    • Central Excise duty
    • Duties of excise
    • Service tax
    • State VAT
    • Central Sales Tax
    • Purchase Tax

    These are the taxes not covered under GST:

    • Custom Duty
    • Stamp Duty
    • Vehicle Tax
    • Excise on liquor
    • Entry taxes and Tolls

The Central Government will levy and administer IGST and CGST, however, SGST and UTGST will be levied and administered by the respective states and UTs.