Fund your business ambitions. Get a Business Loan now

India is one of the fastest-growing economies in the world. The number of entrepreneurs working on their own business ventures is growing rapidly in the country. While availing of business loans is easier than ever before, regulatory changes often cause ripples across industries.

 

In 2017, to simplify the country's taxation system, the government of India introduced GST. GST (Goods and Services Tax) replaced several indirect taxes, including VAT, excise duty, and service tax. It aimed to build a unified system of taxes, which would be consumption-based. This means that the proceeds from these taxes would be paid to the state in which the goods or services were consumed rather than where they originated from.

Difference Between CGST, SGST, and IGST

India is a federal country, which means both central and state governments can levy taxes on the goods and services produced or consumed in the country. Based on the tax levying authority (central government or state government) and the place of consumption of the product/goods, the GST law classifies the tax into the following four categories-

 

  • Central Goods and Services Tax (CGST): Levied by the central government on intra-state supply of goods and services- supply of goods/services within the same state.

  • State Goods and Services Tax (SGST): Levied by the state governments on intra-state supply of goods and services.

  • Union Territory Goods and Services Tax (UTGST): Levied by the UT governments on the supply of goods and services within the UT.

  • Integrated Goods and Services Tax (IGST): Levied by the central government on inter-state supply of goods and services- supply of goods/services from one state to another. The revenue of IGST, is however equally shared between the central government and the state government (state government of the state where the goods/services are consumed).

The following table summarises the key differences between CGST, SGST/UTGST and IGST:

 

CGST

SGST/UTGST

IGST

Applicability

Intra-state supply of goods and services

Intra-state supply of goods and services

Inter-state supply of goods and services

Collecting Authority

Central Government

State Government/UT Government

Central Government (revenue is equally shared between the central and the state government)

Input Tax Adjustments Permissible

Input tax credit of CGST can be used against CGST or IGST, but not against SGST

Input tax credit of SGST can be used against SGST or IGST, but not against CGST

Input tax credit of IGST can be used against either CGST, SGST, or IGST.

Authority of the Central and State Governments Over GST

Before the introduction of GST, both central and state governments used to collect a variety of taxes from businesses including VAT (Value Added Tax), CST (Central Sales Tax), excise duty, and service tax. GST simplified the taxation system of the country as most other indirect taxes were replaced by the GST.

Since both central and state governments need to collect taxes, the GST law, as explained above, has the provision for four types of GSTs which are applicable in different situations and are collected by either a state government or the central government.

The following table illustrates the taxes collected by the central and the state governments before and after the introduction of the GST system:

Collecting Authority

Erstwhile Taxes

Taxes Collected As Per the GST Law

State Government

Value Added Tax (VAT) & Excise / Service Tax

SGST- levied on intra-state supply of goods and services

Central Government

Central Sales Tax (CST) & Excise / Service Tax

CGST- levied on intra-state supply of goods and services and IGST- levied on inter-state supply of goods and services.

How are SGST, CGST and IGST Collected

SGST (State Goods and Services Tax), as is obvious from the name, is collected by the state governments while CGST (Central Goods and Services Tax) and IGST (Integrated Goods and Services Tax) are collected by the central government. Which of these taxes would be applicable depends upon whether the supply of the goods/services is within a state or from one state to another.

 

  • SGST: State Goods and Services Tax (SGST) is collected by the state government on intra-state supply of goods and services (supply of goods/services within a state).

  • CGST: Central Goods and Services Tax (CGST) is collected by the central government over and above the SGST on intra-state supply of goods and services.

  • IGST: Integrated Goods and Services Tax (IGST) is also collected by the central government on the inter-state supply of goods and services (supply of goods/services from one state to another). The IGST revenue is equally divided between the central and the state government (state government of the state where the goods/services are consumed).

     

Let us now understand how CGST, SGST and IGST are collected with the help of two examples. Suppose a product is being supplied from Mumbai to Pune (within Maharashtra). Both the central government and the Maharashtra government will levy CGST and SGST respectively as it is an intra-state supply of goods. However, if a product is being transported from Mumbai (in Maharashtra) to Ahmedabad (in Gujarat), only the central government will collect the IGST and the revenue will be shared equally between the centre and the government of Gujarat.

Can CGST and SGST be Charged Together

If goods/services are being supplied from one place to another within the same state (intra-state supply), both CGST and SGST are levied together by the central and the state government respectively. The amounts collected as SGST and CGST are equal as both central and state governments have an equal revenue sharing arrangement as per the GST law.

 

The GST has sought to make the taxation system simpler for the Indian traders, but it is essential to understand the difference between CGST, IGST and SGST. GST is applicable on all businesses with a turnover of more than Rs. 20 Lakhs. If you are still wondering how to get your business to achieve that turnover, look no further. You can avail the best business loans from Finserv MARKETS which you can use to scale up operations, hire fresh talent and enhance your business.