Good and Services Tax (GST) is a destination-based tax, an end-user consuming any goods or services is liable to pay the Goods and Services Tax. The tax is received by the state in which the goods or services are consumed and not where it is manufactured.
What is CGST, SGST, and IGST?
Central GST (CGST), State GST (SGST) and Integrated GST (IGST) all these taxes are different names for the same tax. The only difference is that tax levying authority and place of sale is different.
What taxes got replaced?
Earlier there used to be multiple taxes such as Central Excise, Service Tax, and State VAT, etc. But under GST, here is just one tax which simplifies things. Goods and Services Tax (GST) is categorized into CGST, SGST and IGST depending on whether the transaction is Intra-State or Inter-State.
How to determine if CGST, SGST, and IGST is applicable?
To determine SGST, CGST, IGST will be applicable in a taxable transaction, it is important to first know whether the transaction is an Intra State or an Inter-State supply.
- Intra-State supply of goods or services is when the location of the supplier and the place of supply i.e., the location of the buyer are in the same state. In Intra-State transactions, a seller has to collect both CGST and SGST from the buyer.
- Inter-State supply of goods or services is when the location of the supplier and the place of supply are in different states. In an Inter-State transaction, a seller has to collect IGST from the buyer.
What is CGST?
The tax imposed on Intra State supplies of both goods and services by the Central Government defines CGST. This implies that both the Central and the State governments will agree on combining their levies with an appropriate proportion for sharing revenue between them. CGST provide for elaborate transitional provisions for the smooth transition of existing taxpayers to the tax regime of goods and services.
What is SGST?
Under GST, SGST is a tax levied on Intra State supplies of both goods and services by the State Government and will be governed by the SGST Act. Both CGST and SGST will be levied on the same Intra State supply but will be governed by the Central Government.
What is IGST?
Integrated Goods and Services Tax (IGST) is a tax levied on all Inter-State supplies of goods and/or services and will be governed by the IGST Act. The concept of IGST will be applicable on any supply of goods and/or services in both cases of import into India and export from India. IGST shall apply to inter-state transactions and import as well as export transactions relating to the supply of goods and/or services.
Difference between CGST and IGST
|CGST stands for Central Good & Service Tax||IGST stands for Integrated Goods & Service Tax|
|CGST is collected when the transaction is intrastate||IGST is collected when the transaction is interstate as well intrastate|
|The tax imposed on Intra State supplies of both goods and services by the Central Government defines CGST||Under GST, SGST is a tax levied on Intra State supplies of both goods and services by the State Government and will be governed by the SGST Act|
|Different Indirect Taxes like – Central Sales Tax CST, Service Tax, Additional excise duties, excise duty levied under the medical and toiletries preparation Act, CVD (Additional Customs duty – Countervailing Duty), SAD (Special Additional Duty of customs) surcharges are merged||the taxes for the movement of goods and services from one state to another are collected under IGST.|
Why the split?
In India, both the Centre and the States have been assigned the powers to charge and collect taxes. Both, central and state governments have easily distinguishable responsibilities to perform, as per the Constitution, for which they need to raise tax revenue.
The Centre and States are simultaneously imposing GST. The three types of tax structure are implemented to help taxpayers take the credit against each other, thus ensuring “One Nation, One Tax”.
How is input tax credits?
Let us consider that goods worth Rs. 12,000 are sold by manufacturer A from Maharashtra to Dealer B in Maharashtra.
Dealer B resells them to Trader C in Rajasthan for Rs. 19,500.
Trader C finally sells to end-user D in Rajasthan for Rs. 32,000.
Suppose the tax rates on the goods sold are CGST= 9%, SGST=9%, and IGST=9+9=18%
Since A is selling this to B in Maharashtra itself, it is an intra-state sale and so, CGST@9% and SGST@9% will apply.
Dealer B is selling to Trader C. Hence, this is an interstate sale, with IGST@18%.
Trader C is selling to end-user D also in Rajasthan. This means it is an intra-state sale and hence, CGST@9% and SGST@9% will be applied.
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