When GST was introduced in India in July 2017, the real adjustment began at the transaction level. We saw it in how invoices were raised, how returns were prepared, and how businesses had to reassess the way supplies were classified. GST brought different tax components into play depending on where a supply was made and how it was structured, and those distinctions started influencing everyday compliance decisions.
As businesses adapted, one pattern became clear. GST issues rarely stem from incorrect tax rates. They arise when a transaction is classified under the wrong GST component. Misreading whether a supply attracts CGST and SGST, UTGST, or IGST often leads to incorrect invoicing, credit mismatches, and reconciliation challenges.
This blog explains how GST components apply across common transaction scenarios. How you identify the correct tax, how revenue flows under each component, and how to avoid errors that typically surface during compliance and audits.
What Decides Which GST Applies to a Transaction
Under GST, the applicable tax is not determined by the invoice format or the customer’s registration alone. It is decided by how a transaction is classified under defined GST rules. Two factors play a central role in this classification: the location of the supplier and the place of supply.
Every supply of goods or services is evaluated using these two locations. Once they are identified, the transaction is classified as either intrastate or interstate. That classification then determines whether CGST with SGST or UTGST applies, or whether IGST applies instead.
This is where most GST confusion begins. When either the supplier’s location or the place of supply is assumed rather than assessed, the wrong tax component gets applied. That single error often carries forward into invoicing, credit utilisation, and reconciliation.
Components of GST in India
Under GST, tax is not charged as a single unified levy. It is split into different components so that tax collection aligns with where a transaction takes place and which authority is entitled to receive the revenue. Once we understand these components, it becomes easier to identify the correct tax before invoicing and return filing.
Central Goods and Services Tax (CGST)
CGST applies when a supply of goods or services takes place within the same state.
- Levied by the Central Government
- Charged on intrastate transactions
- Collected along with SGST on the same invoice
- Paid to the Central Government
- Administered by the Central Board of Indirect Taxes and Customs (CBIC)
When we see CGST on an invoice, it indicates that part of the GST charged is the Centre’s share for a transaction happening within one state.
State Goods and Services Tax (SGST)
SGST is charged on the same intrastate transaction where CGST applies.
- Levied by the State Government
- Applicable to supplies made within the same state
- Charged together with CGST
- Paid to the State Government where the supply occurs
- Administered by the respective State Tax Department
SGST represents the state’s share of tax from transactions happening within its jurisdiction.
Union Territory Goods and Services Tax (UTGST)
UTGST applies in Union Territories that do not have a legislative assembly.
- Levied by the Central Government
- Applicable to supplies made within eligible Union Territories
- Charged along with CGST
- Replaces SGST in these locations
- Follows the same rate structure as SGST
From a compliance point of view, UTGST functions the same way as SGST. The difference lies only in the collecting authority.
Integrated Goods and Services Tax (IGST)
IGST applies when a supply crosses state or Union Territory boundaries.
- Levied by the Central Government
- Applicable to interstate supplies of goods and services
- Applies to supplies between states and Union Territories
- Applicable on imports of goods and services
- Collected as a single tax and later settled with the destination state
IGST ensures that tax revenue flows to the state where the goods or services are ultimately consumed.
Difference Between Types of GST
Aspect |
CGST |
SGST |
UTGST |
IGST |
|---|---|---|---|---|
Full form |
Central Goods and Services Tax |
State Goods and Services Tax |
Union Territory Goods and Services Tax |
Integrated Goods and Services Tax |
Levied by |
Central Government |
State Government |
Central Government (for applicable Union Territories) |
Central Government |
Applies to |
Intra-state supplies |
Intra-state supplies |
Intra-Union Territory supplies (in UTs without a legislature) |
Inter-state supplies, supplies between State and Union Territory, and imports |
When it is charged |
Along with SGST or UTGST on the same invoice for intra-state / intra-UT transactions |
Along with CGST on the same invoice for intra-state transactions |
Along with CGST on the same invoice for applicable intra-UT transactions |
As a single tax on inter-state / inter-UT transactions and imports |
Who receives the revenue |
Central Government |
Respective State Government |
Union Territory administration (via the UTGST framework) |
Collected by the Centre and later settled to the destination (consuming) State/UT as per IGST settlement mechanism |
Administration |
Central Board of Indirect Taxes and Customs (CBIC) |
Respective State GST / State Tax Department |
GST authorities for the applicable Union Territory |
Administered under the GST framework (Centre and States coordinate for settlement) |
Why GST is Split into CGST, SGST, UTGST, and IGST
Federal tax structure: India follows a federal system where both the Centre and States have defined taxation powers. GST is split to reflect this structure without overlapping taxes.
Clear tax application:
- CGST + SGST apply to supplies within the same state.
- CGST + UTGST apply to supplies within Union Territories without a legislature.
- IGST applies to supplies that cross state or Union Territory boundaries.
Defined revenue flow:
- CGST accrues to the Central Government.
- SGST accrues to the State Government.
- UTGST accrues to the Union Territory administration.
- IGST is collected by the Centre and settled with the destination State or Union Territory.
Consistent treatment of interstate supplies:
IGST enables a single tax on interstate and cross-border transactions, ensuring tax follows the place of consumption and avoiding multiple layers of taxation.
GST Calculation Examples
Once the applicable GST component is identified, the tax calculation follows a consistent structure. The difference lies only in which components are applied, not in how the tax is computed.
Example 1: Intrastate Supply (CGST + SGST)
A business registered in Maharashtra sells goods worth ₹10,000 to a customer within Maharashtra.
The applicable GST rate is 18%.
CGST @ 9% = ₹900
SGST @ 9% = ₹900
Total GST charged = ₹1,800
Total invoice value = ₹11,800
In this case, the tax is split equally between the Central Government and the Maharashtra State Government.
Example 2: Intra–Union Territory Supply (CGST + UTGST)
A business registered in Chandigarh supplies services worth ₹10,000 within the same Union Territory.
The applicable GST rate is 18%.
CGST @ 9% = ₹900
UTGST @ 9% = ₹900
Total GST charged = ₹1,800
Total invoice value = ₹11,800
Here, UTGST replaces SGST because Chandigarh is a Union Territory without a legislature.
Example 3: Interstate Supply (IGST)
A business registered in Maharashtra sells goods worth ₹10,000 to a customer in Gujarat.
The applicable GST rate is 18%.
IGST @ 18% = ₹1,800
Total GST charged = ₹1,800
Total invoice value = ₹11,800
IGST is charged as a single tax and later settled with the destination state where the goods are consumed.
Example 4: Import of Goods (IGST)
A business imports goods worth ₹10,000 into India.
IGST applies to imports, regardless of the importer’s location.
IGST @ 18% = ₹1,800
Total IGST payable = ₹1,800
This treatment aligns imports with interstate supplies under GST.
How CGST, SGST, UTGST, and IGST Are Collected
GST collection is designed so that tax revenue reaches the correct authority based on where a supply takes place and where it is consumed. The mechanism changes depending on whether the transaction is intrastate, within a Union Territory, or interstate.
Intrastate Transactions (Within the Same State)
When goods or services are supplied within the same state, GST is split into CGST and SGST.
- CGST is collected on behalf of the Central Government
- SGST is collected on behalf of the State Government
- Both components are charged on the same invoice
- The applicable GST rate is divided equally between CGST and SGST
For example, if a supply within Maharashtra attracts GST at 18%, the invoice reflects 9% CGST and 9% SGST. The supplier remits CGST to the Centre and SGST to the Maharashtra State Government through the GST return process.
Intra–Union Territory Transactions (Within Eligible Union Territories)
When a supply takes place within a Union Territory that does not have a legislative assembly, CGST and UTGST apply instead of CGST and SGST.
- CGST is collected by the Central Government
- UTGST is collected for the Union Territory administration
- Rates and structure are the same as CGST and SGST
From a compliance standpoint, the process remains unchanged. The difference lies only in the authority receiving the Union Territory’s share of tax.
Interstate Transactions (Between States or Union Territories)
When a supply crosses state boundaries or occurs between a state and a Union Territory, IGST applies.
- CGST and SGST or UTGST are not charged
- IGST is charged as a single tax on the invoice
- IGST is collected by the Central Government
The IGST collected is later settled with the destination state or Union Territory where the goods or services are consumed. This ensures GST follows the destination-based principle and avoids tax being applied multiple times on the same supply.
Conclusion
GST becomes manageable when we apply its components with clarity. CGST, SGST, UTGST, and IGST exist to ensure tax is collected by the right authority based on where a supply is made and where it is consumed. Once we identify the location of the supplier and the place of supply correctly, the applicable GST component is no longer a guess.
Across intrastate, interstate, Union Territory, and import transactions, the structure stays consistent. What changes is how the tax is applied, collected, and settled. In our experience, most GST issues do not start with tax rates. They begin when a transaction is classified under the wrong component, and that mistake then carries forward into invoicing, credit utilisation, and reconciliation.
Have more questions related to GST? You can find those answers here.
FAQs
What is GST, and when was it implemented in India?
GST is an indirect tax system implemented in India on July 1, 2017, replacing multiple indirect taxes.
What are the main components of GST?
GST operates through four components:
- Central Goods and Services Tax (CGST)
- State Goods and Services Tax (SGST)
- Union Territory Goods and Services Tax (UTGST)
- Integrated Goods and Services Tax (IGST)
Each component applies based on where a supply takes place and which authority is entitled to collect the tax.
When do CGST and SGST apply?
CGST and SGST apply when the location of the supplier and the place of supply are within the same state. Both components are charged on the same transaction, with CGST collected by the Central Government and SGST collected by the respective State Government.
Is the GST rate different for CGST, SGST, UTGST, and IGST?
No. The overall GST rate remains the same. What changes is how the tax is split. For example, an 18% GST rate may be split into 9% CGST and 9% SGST or UTGST, or applied as 18% IGST, depending on the transaction type.
How do we decide which GST component applies to a transaction?
The applicable GST component is determined by identifying two factors: the location of the supplier and the place of supply. Once these are established, the transaction is classified as intrastate or interstate, and the correct GST component follows.
Does IGST apply only to imports?
No. While IGST applies to imports, it also applies to supplies made between different states and between states and Union Territories. Imports follow the same interstate treatment under GST.
When is IGST charged?
IGST applies when a supply crosses state or Union Territory boundaries. This includes interstate supplies, supplies between a state and a Union Territory, and imports of goods or services. IGST is charged as a single tax and later settled with the destination state or Union Territory.
