What You Should Know About CGST, SGST and IGST?

Since the roll out of GST in 2017, traders and businesses across states in India made drastic attempts to comprehend and quickly adapt to the new tax regulation. Despite the initial trouble of compliance and implementation, the economy has collectively come to admit the benefit of replacing multiple taxes such as VAT, central excise and service tax with a unified tax liability.

GST is applicable at state, central and international level and this is purely based on the destination where the goods and services are consumed and the tax is levied on end user who receives the commodity or services rather than on the state where they are manufactured.  Simply put, this categorization of GST is determined by the supply of goods and service at interstate or intrastate level.

What are Interstate and Intrastate Transactions?

Interstate supply or import of goods and services is when the place of supplier or manufacturer and place of supply are in different states.  Additionally, in case a SEZ unit undertakes the export or import of the goods or services or the transaction is made to a SEZ unit, then it becomes an interstate transaction.

Intrastate transaction is when the location of supply of goods and services and place where the buying activities occur happen to be the same.

Central Goods and Services Tax or CGST

CGST is applicable on intrastate supply of goods and services and is levied by the Central Government as per the CGST Act. The tax is calculated on the base price of the goods or services.

The state goods and services tax or SGST will also be levied on all intrastate exchange of goods and services. This means that the tax would be collected at both state and central level to foster revenue sharing. As per section 8 of the GST Act, both CGST and SGST will be applicable for intrastate transactions but the total rate will not exceed beyond 14 percent. The tax rate of CGST and SGST will always be equal.

The CGST replaces all indirect taxes existing at the central level such as the Service Tax, Central Excise Duty, CST, Customs Duty and SAD. 

State Goods and Services Tax or SGST

It is already stated that both CGST and SGST is applicable at intrastate supply of goods and services. This means that the SGST is also levied on intrastate supply of goods and services by the state government and comes under the SGST act.

The SGST tax replaces all taxes levied by the state including VAT, State Sales Tax, Entertainment Tax, Luxury Tax, Entry Tax, State Cesses and other surcharges that are involved in the exchange of goods and services.  Under this tax, the state government gets to claim the entire tax amount as its revenue.

Integrated Goods and Services Tax or IGST

This tax is applicable on all interstate supply of goods and services as per the IGST Act. This tax is levied on both import and export transactions of any kind of goods or services from India.

Under the IGST, the revenue from tax will be collected by the central government and distributed to the states involved. The aim of IGST is to allow states to deal with the union government and free every state from the hassle of individually managing interstate taxes.  Additionally, in case there is any tax liability under SGST, it can be offset with IGST input tax credit.

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