GST came into effect on 1st July 2017 and is a single comprehensive tax on the supply of goods and services across India, applicable right from the manufacturer to the consumer. It has replaced 13 indirect taxes in the form of excise duty, service tax, VAT, entertainment tax, luxury tax, etc. into one single tax known as GST. In this blog, we aim to provide a detailed understanding of the various components of GST with an explanation of each of them.
There are 4 components of GST such as CGST, SGST, IGST, and UTGST. So, the kind of tax to be paid under GST depends on whether the nature of supply is inter-state and intra-state. When the supply of goods or services happens within a state or intra-state transactions, both the CGST and SGST will be claimed. In case of supply between states or inter-state transactions, only IGST will be collected, and when it happens within union territories, UTGST will be levied. Let us understand each component in detail:
CGST: Central Goods and Service Tax - The Central Goods and Services Tax or CGST is an indirect tax under the GST regime that is applicable to intrastate transactions. Governed by the CGST Act, 2017, CGST is collected by the Central Government. Based on Section 15 of the CGST Act, this tax is levied on the transaction value of the goods or services supplied which is the price actually paid or payable for the said supply of goods or services. For instance, if a supplier from Mumbai has sold goods worth Rs. 10,000 to a customer in Mumbai and the GST applicable is 18%, then CGST and SGST will be divided equally. Hence, out of the total revenue earned, Rs. 900 will go to the Central Government towards CGST.
SGST: State Goods and Service Tax - SGST is an indirect tax levied on the intrastate supply of goods and services and is collected by the State Government of the respective state under the State Goods and Services Act, 2017. As explained above, just like CGST, under section 15 of the SGST Act, SGST is levied on the transaction value of the goods or services supplied which is the price actually paid for the supply of goods or services. Additionally, as per sections 12 and 13 of the SGST Act, the obligation to pay SGST is at the time of supply of goods or services and the CGST portion will also be levied accordingly.
UTGST: Union Territory Goods and Service Tax - UTGST is another indirect tax imposed and collected by the respective Union Territory under the Union Territory Goods and Services Act (UTGST), 2017 on the intra-state supply of goods or services. Alcoholic products meant for human consumption are excluded from the list of products under UTGST. UTGST is applicable to the supplies of goods and services that take place in the Union Territories of Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman and Diu, and Lakshadweep. However, it is to be noted here that SGST law will be applicable to the union territories of Delhi and Puducherry since these territories have their private legislature and Government.
IGST: Integrated Goods and Service Tax - The Integrated Goods and Services Tax or IGST is another component of GST that is applicable to the interstate supply of goods and services as well as to imports and exports between 2 states. The IGST is governed and collected by the Central Government under the IGST Act. The accumulated tax is then divided between the respective states by the Central Government.
The simple division between the components helps to differentiate between intrastate and interstate supply of goods and services and mitigate a host of indirect taxes. Now that you know the main components and types of GST in India and their essential details, it should be easier to understand how it impacts your business.
The Central Government is responsible for imposing and collecting IGST.
The respective Union Territory Government collects the UTGST.
According to GST rules, IGST is shared between the central and state government in the ratio of 50:50.