What is SGST, CGST, and IGST?

Taxes Under GST

What is SGST, CGST, and IGST: As of July 1st 2017, a Goods and Services Tax will be applicable on both goods and services. This GST will be the only indirect tax which will take over all the other indirect taxes you had to pay till now. GST brings the indirect taxes together to bring unification in the taxation process.

Read More: What is GST? – All You Need to Know About GST

What is SGST, CGST, and IGST?

The following taxes will be replaced by GST

  • Taxes applied by the Centre
    • Central Excise duty
    • Special Additional Duty of Customs (SAD)
    • Service Tax
    • Additional Duties of Customs(CVD)
  • Taxes applied by the State
    • State VAT
    • Entertainment and Amusement Tax
    • Central Sales Tax
    • Lottery, gambling and betting taxes

Read MoreHow to calculate GST?

Why Is GST Being Levied In Three Levels

As we know that India is one of the federal countries which have provided power to both Centre and the States to apply and assemble taxes. Both the tiers of government have very specified duties to require to be carried out, with respect to the Constitution of India. According to the Constitution, the State and Centre need to increase the resources. Thus a dual GST has been implemented to fulfill the requirement of Constitution to respect the economic federalism.

Taxes Under GST
Taxes Under GST
  • Both Centre and the State will be applying GST
  • A total of 3 forms of GST format have been installed to assist the taxpayers so that they can get credit against those; this will form a unified financial structure for the Indian

Read MoreHow to do GST Registration?

Classification of GST

  • Intra-State Movement:
    • Central GST (CGST)
    • State GST (SGST)
  • Inter-State Movement:
    • Integrated GST (IGST)
  1. Central GST (CGST)

Central GST is the module under GST which will be applied by our central government on both goods and services. This is applicable specifically to intrastate (within the state) trade. A trader is eligible to utilize input tax credits of CGST opposed to CGST or IGST.

  1. State GST (SGST)

State GST is the module under GST which will be applied by the state governments on both goods and services. This is applicable specifically to intrastate (within the state) trade. A trader is eligible to utilize input tax credits of CGST opposed to CGST or IGST.

  1. Integrated GST (IGST)

Integrated GST is the module under GST which will be applied by our central government on both goods and services. This is applicable specifically to inter-state trade. A trader is eligible to utilize input tax credits of IGST opposed to CGST, SGST or IGST.

Read More: Best GST Softwares and Apps for Taxpayers

Understanding: CGST/SGST/IGST

GST is a tax based on consumption, i.e. the tax will be collected by the state where the goods and services are being consumed and not the state where the manufacturing of these products and services is taking place.

IGST has been strategically designed to make sure that there is no obstruction in the flow of input tax credits between the states. In this case, only one state will have to settle the taxes with the central government, unlike the pre-existing situation; this will make the process a lot easy.

Example: Say a trader in Gujarat sold goods worth Rs. 10,000 to the customer in Gujarat; the GST of 18% will be applied to the goods where the division will be 9% for CGST and the other 9% for SGST. Thus the trader will be collecting a total of Rs.1800 out of which Rs. 900 will go straight to the central government, and the rest Rs.900 will go to the Gujarat government.

In the case of IGST, where say the trader sold goods of Rs. 10,000 to consumers in Rajasthan, the GST rate will remain 18% including 9% of SGST and 9% of CGST, but the tax amount of Rs.1800 will go to the central government.

Adjustment of Input Tax Credits between the Centre and States

Suppose goods or services of Rs. 10,000 are sold by A (manufacturer) in Maharashtra to B (dealer) in Maharashtra. Then B resells the goods or services to C (trader) in Rajasthan for Rs. 17,500. In the end, C sells the goods to D (consumer) for Rs. 30,000.

We know that, CGST = 9%; SGST = 9%
Therefore, IGST = 18%

  • For Intra-State Sale: As A is selling to B within one single state, this will fall under intra-state sale, under this circumstances CGST+SGST= 18% will be applicable.
  • For Inter-State Sale: As B is selling C from Maharashtra to Rajasthan, it is interstate, under this circumstance IGST of 18% will be applicable.
  • As C is selling to D within one state which is again an intra-state sale, CGST+SGST=9% will be applicable.
Adjustment of Input Tax Credits between the Centre and States
Adjustment of Input Tax Credits between the Centre and States
  • As Maharashtra is the state where the goods were only sold and not consumed, Maharashtra won’t get any taxes.
  • Both Central and Rajasthan will get (Rs. 30,000*9%) which is Rs. 2,700 each and not Rs. 2,250.
  • As Maharashtra is the exporting state, it will transfer Rs.900 of SGST to the Centre as credit in the IGST payment.
  • Rajasthan as the importing state will receive a sum of Rs. 450 as IGST credits from the Centre.

Adjustment of CGST, SGST, and IGST between the Centre and the States

Adjustment of CGST, SGST, and IGST between the Centre and the States
Adjustment of CGST, SGST, and IGST between the Centre and the States

The above-mentioned examples are clearly explained how the three taxes (CGST, SGST, IGST) are applicable. These are the three taxes under the umbrella of GST. The purpose of GST is:

  • One taxation system throughout the nation: uniform taxes on goods and services in every purchase, these are also available as credits.
  • In order to keep the fiscal federalism intact, a dual tax system, this will enable both center and states to have the revenue.

GST is the buzzing new tax regime whose pillars are the newly introduced concepts of ‘place of supply’ and few new tax formats. GST is to be applied in the state where the consumption is taking place rather than where the manufacturing is taking place; this qualifies it to be a tax based on consumption.

A lot of confusion has surfaced where the tax payers are having difficulty as to which tax is applied on them, CGST and SGST or IGST? In this case, one simple thing to keep in mind is whether your trade interstate or intra-state, this should minimize the confusion. The GST law has many provisions and explanations which you can find online on the government portal.

About the Author: Ajay D

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