Types of GST in India – CGST, SGST, UGST & IGST

A comprehensive indirect tax system was introduced in India in 2017, known as the Goods and Services Tax (GST). It replaced a multitude of indirect taxes like excise duty, value-added tax (VAT), and others. This destination-based tax is levied on the supply of goods and services. GST aims to simplify the tax system for businesses. Let’s explore the different types of GST to gain a clearer understanding of the concept and its impact on you as a taxpayer.

Understanding the Types of GST Tax In India

1. Intra-State GST

Meaning
When the supplier and the buyer are located in the same state or Union Territory, the transaction is called intra-state supply.

Taxes Applied

• CGST (Central Goods and Services Tax) – goes to the Central Government
• SGST (State Goods and Services Tax) – goes to the State Government
• UTGST (Union Territory GST) replaces SGST in case of Union Territories without a legislature.

Example

• A seller in Maharashtra sells goods to a customer in Maharashtra.
• GST rate = 18% → 9% CGST + 9% SGST.

2. Inter-State GST

Meaning
When the supplier and the buyer are located in different states or different Union Territories, or when the supply involves import/export, it is called an inter-state supply.

Tax Applied

• IGST (Integrated Goods and Services Tax) – collected by the Central Government and later shared with the destination state.

Example

• A seller in Maharashtra sells goods to a customer in Karnataka.
• GST rate = 18% → 18% IGST (no CGST/SGST split at the time of sale).

Types of GST in India?

There are four main types of GST categories, which include Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Union Territory Goods and Services Tax (UGST), and Integrated Goods and Services Tax (IGST).

1. Central Goods and Services Tax (CGST)

• Meaning: CGST is the tax levied by the Central Government on the intra-state supply of goods and services. It is governed by the Central Goods and Services Tax Act, 2017.
• Applicability: CGST is applicable when the supply of goods or services occurs within a single state or Union Territory. For example, if a supplier in Karnataka sells goods to a customer in the same state, both CGST and SGST will be levied.
• Input Tax Credit (ITC): Businesses can claim the ITC for the CGST paid on their purchases, which can be used to set off their CGST liability. The credit can be utilized as follows:
  1. CGST ITC can be used to pay CGST liability.
  2. Any remaining CGST ITC can then be used to pay IGST      liability.
• Revenue Sharing: The revenue collected from CGST is deposited with the Central Government.

State Goods and Services Tax (SGST)

• Meaning: SGST is the tax levied by the State Government on the intra-state supply of goods and services. It is governed by the respective State Goods and Services Tax Act, 2017.
• Applicability: SGST applies to the supply of goods and services within a single state, alongside CGST.
• Input Tax Credit (ITC): Businesses can claim the ITC for the SGST paid on their purchases, which can be used to set off their SGST liability. The credit can be utilized as follows:

1. SGST ITC can be used to pay SGST liability.
2. SGST ITC can only be used to pay SGST liability, and then IGST, but only after CGST ITC is exhausted

Note: SGST ITC cannot be used to pay CGST liability, and vice versa.

• Revenue Sharing: The revenue collected from SGST is deposited with the respective State Government.

3. Union Territory Goods and Services Tax (UTGST)

• Meaning: UGST is the tax levied on the supply of goods and services within the Union Territories of India that do not have their own legislature. This includes Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli and Daman and Diu, and Chandigarh. The Union Territory Goods and Services Tax Act, 2017, governs it.
• Applicability: UTGST applies to the intra-Union Territory supply of goods and services. It is levied in place of SGST. In Union Territories with legislatures (Delhi, Puducherry, and Jammu & Kashmir), SGST is applicable under a structure similar to states.
• Input Tax Credit (ITC): Businesses can claim the ITC for the UTGST paid on their purchases, which can be set off against their UTGST liability, and then against IGST liability. UTGST and CGST credits cannot be cross-utilized.
• Revenue Sharing: The revenue collected from UTGST is deposited with the Union Territory administration.

4. Integrated Goods and Services Tax (IGST)

• Meaning: IGST is the tax levied on the inter-state supply of goods and services, as well as on imports and exports. The Integrated Goods and Services Tax Act, 2017, governs it.
• Applicability: IGST is applicable when the supply of goods or services occurs between two states, two Union Territories, or between a state and a Union Territory. It is also levied on imports and exports.
• Input Tax Credit (ITC): Businesses can claim the ITC for the IGST paid on their purchases. The credit can be set off in a specific order:
  First, against IGST liability.
  Second, against the CGST liability.
  Third, against SGST/UTGST liability.
• Revenue Sharing: The revenue collected from IGST is initially deposited with the Central Government. The Centre then apportions the appropriate share to the destination state where the goods or services are consumed.

Example for a ₹1,000 product with an 18% GST rate:

• Intra-state supply (e.g., within Karnataka):
  CGST: 9% = ₹90 (goes to Central Government)
  SGST: 9% = ₹90 (goes to Karnataka State Government)
  Total GST = ₹180
• Inter-state supply (e.g., from Maharashtra to Tamil Nadu):
  IGST: 18% = ₹180 (initially goes to the Central Government, which then remits the state’s share to Tamil Nadu, the consuming state).

At-a-Glance Comparison

The payment of GST on time is of great importance to any business. Failure to do so can result in penalties and statutory compliance issues. Often, companies face issues retrieving the amount to be paid from the portal and then going through the process of making the challan, checking it, and getting the approvals internally to make the payment.

That is where a platform like the one we offer to our customers at EnKash helps you. You can set maker, checker, and approver levels within the tax payments module so that once you retrieve the amount to pay, you can get the requisite approvals in place.

Moreover, you also have various payment options to complete the payment via the portal. Once the payment is completed, your finance system is updated automatically.

Difference Between the Types of GST Categories

Objective of GST

The Goods and Services Tax (GST) was introduced in India in 2017 with the primary objective of simplifying the indirect tax system. It aimed to:

• Reduce Cascading Effect: Previously, several indirect taxes were levied at different stages of production and distribution, leading to a cascading effect that inflated the final price of goods and services. GST eliminates this by having a single tax point
• Promote Tax Compliance: A simpler tax structure with fewer exemptions makes GST easier for businesses to understand and comply with
• Boost Economic Growth: GST aims to encourage economic activity and growth by streamlining tax processes and reducing compliance burdens
• Create a Unified Market: GST facilitates the seamless movement of goods and services across states by eliminating inter-state tax barriers.

Taxes Replaced with GST

1. Central Taxes Replaced

Before GST, the Central Government collected multiple indirect taxes, which are now subsumed into GST:

• Central Excise Duty (on manufacture of goods)
• Service Tax (on services)
• Additional Duties of Excise (on special goods like textiles)
• Additional Customs Duty (CVD – Countervailing Duty)
• Special Additional Duty of Customs (SAD)
• Central Surcharges & Cesses related to supply of goods/services

2. State Taxes Replaced

The State Governments also had various indirect taxes, now merged into GST:

• Value Added Tax (VAT) (on sale of goods within the state)
• Central Sales Tax (CST) (on inter-state sale, collected by the Centre but assigned to states)
• Octroi & Entry Tax (on goods entering a state/local area)
• Purchase Tax
• Luxury Tax
• Entertainment Tax (except taxes by local bodies)
• State Surcharges & Cesses related to the supply of goods/services

Conclusion

The introduction of GST categories in India, with its four distinct types – CGST, SGST, UGST, and IGST – has been a game-changer for the country’s tax system. The consolidated tax system under GST removed the cascading tax effect, created a unified market, and encouraged economic growth while improving tax compliance. While challenges remain, continuous efforts by the government and stakeholders are addressing these issues, ensuring that GST achieves its full potential as a transformative tax reform. As businesses and consumers adapt to the GST regime, the benefits of a simplified, transparent, and efficient tax system are becoming increasingly evident.

FAQs

1. What is GSTIN?
   It is the unique identification number that is assigned to each taxpayer. It consists of 15 digits and is assigned to business entities or individuals at the time of registration completion under the regime.
2. What is the full form of CGST?
   The full form of CGST is the central goods and services tax, which has been brought to replace several indirect taxes that the central government had in place. These taxes applied to goods and services that were moved intrastate.
3. What is the full form of IGST?
   IGST stands for integrated goods and services tax, which is one of the 3 components that form the goods and services tax (GST). It is applicable when goods or services move interstate.
4. What is the full form of SGST?
   This translates to state goods and services tax, which is part of the state goods and services tax 2016. The tax applies to goods and services traded within the state and is deposited in the state government’s account.
5. Who is liable to pay GST?
   A person or business must register under GST if their aggregate turnover exceeds ₹20 lakh, except in special category states where the limit is ₹10 lakh. For the supply of goods, the threshold is ₹40 lakh in some states.
6. What goods are exempt from GST payment?
   Certain essential items like fruits, vegetables, milk, bread, and certain agricultural products are exempt from GST. You can find a comprehensive list of exempted goods and services on the official GST website.
7. What is input tax credit (ITC)?
   The input tax credit is the credit available to a registered taxpayer for the GST paid on the purchase of goods or services used in the course of business.
8. Can the input tax credit be claimed for all GST paid?
   No, input tax credit can be claimed only for GST paid on purchases that are used for business purposes.
9. What will happen if I don’t pay GST on time?
   Delays in GST payment can result in penalties and interest charges imposed by the tax authorities.
10. What is the GST rate in India?
    The applicable Goods and Services Tax (GST) rate in India varies based on the nature of goods or services. They are categorized into four main slabs: 5%, 12%, 18%, and 28%. Some essential items may be exempted or subject to lower rates, while luxury items may attract higher rates.