written by Khatabook | July 9, 2021

Types of GST in India - What is CGST, SGST and IGST?

GST in India has replaced various other taxes such as service tax, VAT and excise duty. The GST Act was passed on 29th March 2017, and it was implemented on 1st July 2017 to become the one hundred and first constitutional amendment passed by the government of India. GST is an independent and single tax law throughout India. The different types of GST are CGST, SGST, UTGST and IGST, and the laws are the same for the entire country. The GST varies depending on the goods and services supplied and their value.

The major tax slabs are 0%, 5%, 12%, 18% and 28%. The cheaper and essential goods and services tend to fall under the 0% category, while the more expensive and luxurious ones come under the 28% category. 

Types of GST in India

The GST types in India, namely, CGST, SGST, UTGST and IGST, have specific taxation rates. These rates are fixed by the Government of India and will be applicable as decided by the government.

How Many Types Of GST Are There?

There are three types of GST:

  • CGST (Central Goods and Services Tax)
  • SGST (State Goods and Services Tax
  • UTGST (Union Territory Goods and Services Tax) 
  • IGST (Integrated Goods and Services tax)

What is SGST?

The State Goods and Services Tax is one of the GST types which the government of a particular state imposes. The state government taxes goods and services within the state(intrastate, for example Mysore), and the state government is the sole beneficiary of the collected revenue.

  • The SGST replaces various state-level taxes such as lottery tax, luxury tax, VAT, purchase tax and sales tax.
  • However, if the transaction of the goods is interstate (outside the state), then both SGST and CGST are applied. But, if the goods and services are transactions within the state, only SGST is imposed. 
  • The rate of GST is equally divided among the two types of GSTs. For instance, when the traders sell their commodities within their state, they must pay SGST and CGST. The revenue earned from SGST belongs to the state government and revenue from CGST to the central government. 
  • The SGST of various goods and services depends on the government notification published from time to time . 

SGST Rates 

Commodities

SGST

Common Groceries such as Tea, Salt, Spices, Sugar, Etc.

2.5%

Processed foods

Electronic goods

6%

Capital Goods, toiletries, etc.

9%

Premium luxury commodities

14%

What is CGST?

The Central goods and Services tax applies to the intrastate (within the state) supply of goods and services. The central government taxes it. The CGST Act governs this type of GST. Here, the revenue generated from the CGST is collected along with the SGST and is divided between the central and state government. 

For instance, when a trader makes a transaction within the state, the goods are taxed with SGST and CGST. The GST rate is divided equally between SGST and CGST, while the revenue collected under the CGST belongs to the central government. 

CGST Rates

Commodities

CGST

Common Groceries such as Tea, Salt, Spices, Sugar, Etc.

2.5%

Processed foods

Electronic goods

6%

Capital Goods, toiletries, etc.

9%

Premium luxury commodities

14%

Also Read: GST Rates in India - List of Goods and Service Tax Rates, Slab

What is IGST?

The Integrated Goods and Services tax is a type of GST, where the tax applies on the interstate supply of goods and services. This GST type is also imposed on the goods and services that are imported as well as exported. The IGST Act governs it, and the central government is responsible for the collection of IGST. 

The collected IGST is equally divided into central and state government portions. The State portion of the IGST is provided to the state where the goods and services are received. The remaining IGST received goes to the central government. 

For instance, when the trader makes a supply between two states, the type of tax in this case would be IGST. 

IGST Rates

Commodities

IGST

Common Groceries such as Tea, Salt, Spices, Sugar, Etc.

5%

Processed foods

Electronic goods

12%

Capital Goods, toiletries, etc.

18%

Premium luxury commodities

28%

 

What is UGST?

The Union Territory Goods and Services Tax is a type of GST imposed on the goods and services in the union territories. This is similar to the SGST but applies only to the union territories. 

The UGST is applicable in Dadra, Nagar Haveli, Chandigarh, Andaman and Nicobar along with Pondicherry and Delhi. Here the revenue collected by the government belongs to the Union territory government. As the UGST is a replacement for the SGST, they are collected along with the CGST. 

How is the GST determined?

  • GST is determined based on the location of the seller and buyer of the goods and services. 
  • CGST and SGST apply to the intrastate supply of goods and services. In contrast, IGST applies to the interstate supply of goods and services. 
  • Thus, the IGST rate is a combination of the CGST and SGST rates. 

Objectives of GST

The major objectives of GST are

  • The elimination of other taxes - The introduction of the GST Act led to the replacement of other indirect taxes. The major taxes are grouped into the GST. 
  • Increases compatibility - The tax compliance is easier for MSME or small scale businesses. In addition, the presence of a single tax makes the process of filing a return easier. 
  • Increases transparency - The GST reduces the chances of corruption and increases transparency. For example, in businesses there are reduced chances of a false input tax credit. 
  • Reduction of price - The GST bill imposes taxes exclusively on the net value-added part, eliminating the previous tax-on-tax system and reducing the cost of commodities.
  • Boost the country's revenue - A large tax-to-GDP ratio indicates increased government revenues, indicating a healthy economy. In addition, a broader tax base and greater tax compliance can lead to an increased government income from GST operations.
  • High efficiency and productivity - The GST in India intends to eliminate logistical restrictions and the time-consuming filing process for the input tax credit. Furthermore, by eliminating the entry tax, the productivity levels of businesses are predicted to rise.

Why was GST required?

  • The GST is the biggest and most important tax reform in India. The inclusion of various indirect taxes into the GST reduces manufacturing and production costs and also aids in the country's economic growth. 
  • The rates and regulations for VAT varied by state. Also, it's been noticed that states frequently seek to lower these rates to entice investors. This resulted in loss of revenue for both the Central government as well as other State governments.

GST, on the other hand, implements standard tax regulations throughout all states, covering a wide range of businesses. According to a preset and pre-approved formula, the taxes are distributed between the Central and State governments in this case. Furthermore, because there is no additional state-levied tax, it is much easier to sell services and goods uniformly across the country.

Features of GST

  • Every business registered under GST receives a Goods and Services Tax Identification Number (GSTIN) or a GST Number under the GST Act. This GSTIN assists the GST officers in keeping track of GST dues and transactions.
  • No business or organization can operate without first registering under GST. Incomplete GST Returns submissions lead to the denial of the input tax credit as well as imposition of fines.
  • The GSTIN is essentially a mark of legitimacy. It contributes to your brand's identification for clients, e-commerce platforms, public tenders, financial firms, corporates, and others. 
  • GST gives a simplified registration scheme known as the Composition scheme. This is a simple and straightforward scheme for individual businesses. It eliminates time-consuming GST requirements and pays GST at a predetermined rate of turnover. 
  • GST in India has also resulted in certain disadvantages such as increase in cost, especially of software increasing operational costs of businesses. Therefore, it has increased complexity in business functioning. 

Also Read: GST Explained for Everyone

Conclusion

The Goods and Services Tax (GST) has replaced approximately 17 indirect taxes levied by state and central governments. However, due to each state's different set of tax regulations, there was a lack of uniformity in the tax system. As a result, internal trade and commerce were jeopardized, and tax evasion was a concern. The implementation of GST has resolved all of these difficulties.

FAQs

How many types of GST are there in India?

In India, the GST is divided into 3 categories. They are CGST (Central Goods and Services  tax), SGST (State Goods and Services Tax)/UTGST (Union Territory Goods and Services Tax) and IGST (Integrated Goods and Services Tax).

Are all the GST categories applicable in India?

Yes, all types of GST are applicable in India.

Are there certain goods that are exempted from GST?

Yes, certain goods and services such as petroleum, natural gas and high-speed diesel do not come under GST.

Is GST filing mandatory?

Yes, businesses are required to file GST returns. Even if the transaction in a given period is little or non-existent, you must file the returns. Otherwise, It could cause issues with subsequent returns, resulting in penalties.

What are CGST, SGST, IGST and UGST full forms?

CGST stands for Central Goods and Services Tax, SGST stands for State Goods and Services Tax, IGST stands for Integrated Goods and Services Tax, and UGST stands for Union Territory Goods and Services Tax.

When should one file a GST return?

A GST return or GSTR is a record that taxpayers must file within the due date.  The record contains information about income, purchases, and expenses, and it has proven effective in calculating an individual's tax burden.

How is GST calculated?

GST is determined in India as the sum of GST payable on a chargeable basis, inbound and outbound goods and services. This total is determined separately for each month, and you must pay the amount computed while filing your GST returns every month.

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