Types of GST in India Explained

Introduction

The Goods and Services Tax (GST) is a comprehensive indirect tax system implemented in India on July 1, 2017. It replaced multiple indirect taxes like VAT, service tax, and excise duty, creating a unified tax structure across the country. GST in India is categorized into different types based on the transaction’s nature and the location of the supplier and recipient. This article will explore the different types of GST, how they work, and their applicability to various businesses.

What Are the Different Types of GST?

There are majorly four types of GST in India:

1. CGST (Central Goods and Services Tax)
2. SGST (State Goods and Services Tax)
3. IGST (Integrated Goods and Services Tax)
4. UTGST (Union Territory Goods and Services Tax)

Each of these GST categories serves a distinct purpose in the GST framework, ensuring a seamless tax collection system.

1. CGST (Central Goods and Services Tax)

Among the types of GST, Central GST is levied by the Central Government on intra-state supplies of goods and services. It applies when a transaction takes place within the same state. The revenue collected under Central GST is deposited with the Central Government.

Features of CGST

• Levied on intra-state transactions
• Collected by the Central Government
• The rate of CGST is generally equal to SGST, making the total tax rate the same as IGST
• Businesses can claim Input Tax Credit (ITC) on CGST paid

Example: If a manufacturer in Maharashtra sells goods worth INR 10,000 within Maharashtra, and the GST rate is 18%, CGST will be 9% (INR 900), and SGST will be 9% (INR 900).

2. SGST (State Goods and Services Tax)

State GST is levied by the State Government on intra-state supplies of goods and services. It works in conjunction with CGST, ensuring that both central and state authorities receive their share of tax revenue.

Features of SGST

• Applicable on intra-state transactions
• Collected by the respective State Government
• ITC can be claimed on SGST paid

Example: Continuing the above example, if the seller in Maharashtra sells goods within the state, INR 900 will go to the Maharashtra State Government as State GST.

3. IGST (Integrated Goods and Services Tax)

IGST is levied by the Central Government on inter-state transactions of goods and services, meaning transactions that occur between two different states or union territories.

Features of IGST

• Levied on inter-state transactions
• Collected by the Central Government, which then distributes it between the states
• Ensures seamless tax flow between states

Example: If a manufacturer in Maharashtra sells goods to a buyer in Karnataka, IGST of 18% (INR 1800 on a scale of INR 10,000) will be charged instead of CGST and SGST.

4. UTGST (Union Territory Goods and Services Tax)

Among the types of GST, UTGST is similar to SGST but applies to Union Territories (UTs) like Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman and Diu, and Lakshadweep.

Features of UTGST

• Levied on intra-UT transactions
• Collected by the respective UT Government
• Works alongside CGST

Example: If a business in Chandigarh sells goods worth INR 10,000 within Chandigarh, UTGST of INR 900 and CGST of INR 900 will be applicable.

You can:- Apply for GST Registration with Registerkaro

How Each Type of GST Works in India

The different types of GST ensure that tax revenues are fairly distributed between the Central and State Governments while simplifying tax compliance for businesses. The tax structure operates under GST categories as follows:

• Intra-state sales (within the same state) attract CGST + SGST or CGST + UTGST.
• Interstate sales (between two states) attract IGST, which is collected by the Central Government and then apportioned between states.
• Imports attract IGST, ensuring uniform taxation on foreign goods.

Applicability of GST for Different Businesses

We have specified the types of businesses and their respective types of GST here: 

1. Manufacturers and Traders
   • Need to register under GST if their turnover exceeds the prescribed threshold (currently INR 40 lakh for goods and INR 20 lakh for services in most states).
   • Must charge CGST and SGST on intra-state sales and IGST on inter-state sales.
2. Service Providers
   • Must register for GST if their turnover exceeds INR 20 lakh (INR 10 lakh in special category states).
   • Must apply CGST and SGST for intra-state services and IGST for inter-state services.
3. E-commerce Sellers
   • Required to register under GST irrespective of turnover.
   • Must comply with TCS (Tax Collected at Source) provisions.
4. Exporters and Importers
   • Exports are zero-rated, meaning no GST is charged but ITC can be claimed.
   • Imports attract IGST and applicable customs duties.

Conclusion

The Indian GST system, categorized into CGST, SGST, IGST, and UTGST, ensures a streamlined and transparent tax mechanism. By eliminating multiple indirect taxes and bringing uniformity in taxation, GST has simplified business operations and increased compliance. Understanding these GST categories is crucial for businesses to ensure proper tax application and compliance with the law.

Frequently Asked Questions (FAQs)

1. What is the difference between CGST and SGST?

CGST (Central GST) is collected by the Central Government, whereas SGST (State GST) is collected by the respective State Government. Both apply to intra-state transactions.

2. When is IGST applicable?

IGST is applicable when goods or services are supplied between different states or Union Territories.

3. Do Union Territories have SGST?

No, Union Territories have UTGST instead of SGST.

4. Can businesses claim ITC on GST paid?

Yes, businesses can claim Input Tax Credit on GST paid on purchases, subject to eligibility criteria.

5. Are exports taxed under GST?

No, exports are zero-rated, meaning no GST is charged, but ITC can be claimed on input taxes paid.

6. Is GST applicable on petroleum products?

Currently, petroleum products like petrol, diesel, and natural gas are outside the GST regime and are taxed separately by the central and state governments.

7. Do small businesses need to register under GST?

Small businesses with a turnover below the prescribed limit are exempt from GST registration unless they engage in inter-state trade or e-commerce.

8. How does GST impact consumers?

GST reduces tax cascading, leading to lower prices for consumers on many goods and services.

9. Can a person have multiple GST registrations?

Yes, businesses operating in multiple states need to obtain separate GST registrations for each state.

10. What happens if GST is not paid on time?

Late payment of GST attracts interest and penalties as per the GST law.