Last Updated on May 24, 2022 by
The implementation of GST in India took place after decades of discussions about a single indirect tax regime. The idea was first brought forward in 2000 by the Vajpayee Government. However, the structuring of the rules took considerable time and effort. Finally, the GST Act was passed in the Lok Sabha and Rajya Sabha on 29 March 2017. GST came into force on 1 July 2017 in the country.
The new taxation regime came with many benefits and a set of challenges. It required the business owners, chartered accountants, and all others involved in the system to understand the new compliance requirements. However, it streamlined a lot of processes and removed unwanted hassles. The unification of taxes gave clarity about their collection and their payment. Let us understand what GST is and the benefits that it provides.
Table of Contents
What is GST?
The Goods and Service Tax (GST) is an indirect tax levied on the supply of goods and services. Being a destination-based tax, it is charged in the state where the good or service is consumed. With its introduction in July 2017, GST has subsumed all indirect taxes to promote the narrative of ‘One Nation, One Tax’.
GST comes with a range of benefits. To begin with, it has removed the cascading effect of taxes. If you are a taxpayer producing goods for further processing, you may also claim the input tax credit. Because of this, goods and services are not taxed at every successive stage in the supply chain, but only when they are consumed.
Apart from this, registration under GST has its benefits. To avail these perks, many more suppliers have registered under the scheme. This has reduced tax evasion and significantly increased the revenue for the government.
Furthermore, GST has various types. Let us see what they are and who is responsible for their collection.
What are the types of GST?
GST is divided into the following four categories:
Central Goods and Service Tax (CGST)
The Central government levies CGST on the supply of goods and services within a state. It is governed by the CGST Act. On intra-state supply, CGST is charged with SGST at the same rate. The part collected as CGST is solely a revenue for the Centre. Any input tax credit on CGST must first be adjusted with CGST, then with IGST.
State Goods and Service Tax (SGST)
The State government charges SGST and is governed by the SGST Act. As in the case of CGST, SGST is also applicable to intra-state supply. The revenue earned goes to the State government. Input tax credit against SGST must first be set off with SGST. Any remaining amount is adjusted with IGST. As a rule, the tax credit on SGST cannot be adjusted with CGST and vice versa.
Union Territory Goods and Service Tax (UTGST)
The UTGST Act mentions the rules for UTGST. Similar to SGST, UTGST is charged on intra-state supply in the Union Territories in the country. These include Andaman and Nicobar Islands, Lakshadweep, Ladakh, Chandigarh, Dadra & Nagar Haveli, and Daman & Diu. Where UTGST is applicable, SGST is not. Moreover, input tax credit on UTGST is first adjusted with UTGST, then with IGST.
Integrated Goods and Service Tax (IGST)
IGST applies to the inter-state supply of goods and services. The Central government collects this amount. The respective State government receives its share, depending on where the goods or services are consumed. IGST is also applicable to the import and export of goods and services. Here, any input tax credit is first set off against IGST, then with CGST, followed by SGST.
Let us understand the applicability of the types of GST with a few examples.
Assume that you run a business in Nagpur and have sold goods worth Rs. 10,000 to Mr X in Pune. Since the supply is made within the state of Maharashtra, both CGST and SGST will apply. If 12% GST is applicable on the supply, 6% will be CGST, and 6% will be SGST. In this case, you will be liable to pay Rs. 1,200 (Rs. 600 + Rs. 600) as tax.
In another case, assume you make the supply from Nagpur to Bhopal. You send across goods worth Rs. 20,000, which are taxable at 5% GST. In this case, the supply is between Maharashtra and Madhya Pradesh. Here, IGST will be applicable. The Central government will collect Rs. 1,000.
To understand UTGST, assume that your business is located in Chandigarh. You supply services within the Union Territory. You supply services for Rs. 6000 and pay 18% GST. The government shall collect the Rs. 1,080 as tax. This will be divided between the Central and the Union Territory government equally.
Let us summarise the difference between the GST categories.
A comparative analysis
Tabulated below is the difference between the types of GST. Let us compare them side by side.
| Particulars | CGST | SGST | UTGST | IGST |
| Applicability | On intra-state supply | On intra-state supply | On intra-UT supply | On inter-state supply |
| Tax collection authority | Central government | State government | Union Territory government | Central government |
| Benefitting authority | Central government | State government | Union Territory government | Central and State government |
| Priority to set off ITC | CGST, IGST | SGST, IGST | UTGST, IGST | IGST, CGST, SGST |
In conclusion
The Goods and Service Tax has four main components – CGST, SGST, UTGST, and IGST. The Act gives clarity on tax collection, removing the scope for confusion. It allows for the implementation of a single tax regime throughout the country. This has significantly reduced the compliance issues that taxpayers face and increased the revenue for the government.
