Components of GST - CGST, SGST, UTGST and IGST Explained

Components of GST in India

Sajhyadri C Posted on October 13, 2025

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 based in Mumbai has sold goods that are 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.

Key Changes in CGST Effective from September 22, 2025

The CGST amendments aim to streamline the tax structure, ensure a more straightforward tax collection mechanism, and ease the compliance burden on businesses. Here are the key updates:

Rationalisation of GST Rate Slabs

Demerit or Luxury Rate: Goods like high-end vehicles, luxury items, and tobacco now attract a 40% GST rate.
Abolition of 12% and 28% Slabs: The 12% and 28% slabs have been eliminated and replaced by a simplified structure.

Standard Rate: The 18% GST rate has been maintained as the standard rate for most goods and services.
Merit Rate: Essential goods and services now fall under a reduced 5% GST rate.

Sector-specific Adjustments

Agricultural Inputs: The GST on agricultural machinery and inputs has been reduced to 5% to support the farming sector.
Healthcare and Pharmaceuticals: Life-saving drugs and medical equipment have seen a reduction to nil or 5% GST.
Consumer Goods: Essential consumer goods such as toiletries and packaged food have moved to the 5% slab.

Input Tax Credit (ITC) Adjustments

Transition of ITC: Businesses with stock purchased at previous higher rates can offset increased tax liabilities by utilising accumulated ITC.
Reversal of ITC: In cases where GST rates have decreased, businesses will need to reverse the excess ITC.

Amendments to CGST Rules

Third Amendment Rules 2025: Includes updates to several provisions, such as:
- Rule 39: Changes with retrospective effect from April 1, 2025.
- Rule 91: Changes with prospective effect from October 1, 2025.
Other rules have been updated to reflect the new rate structure.

Compliance Requirements

Updated Notifications: A new Gazette notification, detailing the revised CGST rates, has been issued, and businesses are required to comply with the new structure.
Monitoring and Enforcement: The CBIC has directed field offices to track price changes for goods impacted by the new GST rates.

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.

Key Changes in SGST Effective from September 22, 2025

Rationalisation of GST Rate Slabs

Standard Rate: Like the CGST, the 18% rate has been set as the standard rate for most goods and services.
Merit Rate: The 5% rate applies to essential goods and services within the states.
Luxury/Demerit Rate: Luxury and non-essential items such as high-end automobiles and certain processed foods now attract a 40% rate.
Abolition of 12% and 28% Slabs: The SGST also reflects the elimination of the 12% and 28% slabs, replaced with simpler tax brackets.

Sector-specific Adjustments

Agricultural Goods: GST rates on agricultural goods, including fertilisers, pesticides, and machinery, have been reduced to 5% under SGST as well.
Healthcare Products: The SGST rate on life-saving drugs and medical equipment has been set at 5% or nil for certain products, reflecting the goal of improving healthcare affordability.
Consumer Goods: Essential items such as packaged food and hygiene products are now taxed at 5% under SGST.

Input Tax Credit (ITC) Adjustments

Transition and Reversal: The transition of ITC from higher GST rates to the revised structure will follow similar rules to the CGST. If a business purchased goods under a higher GST rate but is now liable to pay a lower tax, the excess ITC will need to be reversed.

State-specific SGST Notifications

State-specific Updates: Each state will issue individual notifications reflecting the new rates and product classifications under SGST. This ensures uniformity in the application of GST rates across states while allowing for state-specific adjustments where required.
Taxable Event and Timing: State governments have also aligned their notifications with the updated rules for when the tax is considered due, ensuring businesses follow the correct filing timelines.

Compliance Requirements

State Tax Filing: Businesses are required to update their tax filings and records to reflect the new SGST rates. This includes adjusting invoicing systems, ensuring the correct GST rates are applied, and filing updated returns.
Cross-verification: States will conduct cross-verification with the central government to ensure that the proper tax shares are divided between the central and state coffers.

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.

Key Changes in UTGST Effective from September 22, 2025

Revised Rate Structure: The Union Territory GST rates have been updated to accommodate a new range of goods and services under various slabs. This will simplify tax collections and make compliance easier for businesses operating in Union Territories.
- 5% (Schedule I): This rate covers 516 essential goods, including food products, fertilisers, healthcare items, renewable energy devices, and eco-friendly products.
- 18% (Schedule II): This covers 640 goods, such as processed goods, lifestyle items, household products, and industrial inputs, making it one of the most common rate slabs.
- 40% (Schedule III): A higher rate of 40% has been introduced for 13 luxury and demerit goods that are considered non-essential.
- 3% (Schedule IV): This rate applies to 15 goods, primarily precious metals.
- 0.25% (Schedule V): Three goods fall under this category, including rough precious and semi-precious stones.
- 1.5% (Schedule VI): This applies to diamonds and related products.
- 28% (Schedule VII): The highest rate slab covers 6 goods, including luxury and sin items like automobiles, tobacco products, and aerated drinks.
Impact on Union Territories: The revised rate structure aligns the taxation system across Union Territories, making it simpler for businesses to operate within these regions. With the introduction of new rate slabs and the categorisation of goods under specific schedules, businesses can better understand their tax obligations and plan their pricing and compliance processes accordingly.

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.

Key Changes in IGST Effective from September 22, 2025

Revised Rate Structure: IGST has seen a revision in its rate structure, aimed at promoting ease of business and simplifying the tax administration. The updated rates will help standardise the taxation of interstate goods and services across India.
- 5% (Schedule I): This rate applies to 516 essential goods, including food products, healthcare items, fertilisers, and renewable energy devices.
- 18% (Schedule II): A common rate applicable to 640 goods such as processed goods, household products, lifestyle items, and industrial inputs.
- 40% (Schedule III): Luxury and demerit goods are taxed at the highest rate of 40%. This includes 13 products, such as high-end vehicles, tobacco, and luxury accessories.
- 3% (Schedule IV): This rate applies to 15 goods, mainly precious metals.
- 0.25% (Schedule V): Rough precious and semi-precious stones fall under this category.
- 1.5% (Schedule VI): This category includes diamonds and related products.
- 28% (Schedule VII): High-tax items such as automobiles, luxury goods, and aerated drinks are taxed at the highest slab of 28%.
Revenue Sharing: The key update in IGST is how the collected revenue is split between the central and state governments. The 50:50 split remains, ensuring that both the Centre and states receive an equal share of the IGST revenue. This equal division is crucial for balancing the fiscal health of both the central and state governments.
New Import Rules: IGST will continue to apply to imports and exports between states. However, the changes introduce more transparency and ease in the filing of tax returns for interstate transactions. The central government will ensure the proper division of IGST revenue between states, reducing disputes and delays in the distribution of funds.

Conclusion

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.

FAQs

Components of GST

How will the abolition of the 12% and 28% GST slabs affect businesses?

The abolition of the 12% and 28% GST slabs aims to simplify the GST structure. Goods previously under these slabs have been reclassified into the 5%, 18%, or 40% categories. Businesses will need to adjust their pricing and tax compliance systems to reflect the new rates.

What impact do the revised GST rate slabs have on luxury and sin goods?

Luxury and sin goods, such as high-end vehicles, tobacco products, and aerated drinks, now attract a higher GST rate of 40% under the new amendments. This change is part of the government's effort to target non-essential items with higher taxes, thereby encouraging more equitable taxation across essential and luxury goods.

Who collects IGST?

The Central Government is responsible for imposing, collecting, and administering IGST (Integrated Goods and Services Tax) on interstate supplies of goods and services. The IGST revenue is shared equally between the Central Government and the State Governments based on the 50:50 ratio, as per the latest GST amendments.

Who collects UTGST?

The respective Union Territory Government is responsible for collecting UTGST on intra-state supplies of goods and services within Union Territories. However, Union Territories with a legislative assembly, such as Delhi and Puducherry, are governed by SGST laws, with their own specific amendments. These territories follow the SGST framework instead of UTGST as per the latest updates.

How is IGST revenue split between the central and the state governments?

The IGST revenue continues to be split between the Central Government and State Governments in a 50:50 ratio as per the existing GST laws. This method ensures an equal share of revenue from interstate transactions, with the Central Government initially collecting the full IGST amount, then distributing the appropriate share to each state.