India has four types of GST: Integrated Goods and Services Tax (IGST), State Goods and Services Tax (SGST), Central Goods and Services Tax (CGST), and Union Territory Goods and Services Tax (UTGST). This simple division makes it easy to tell the difference between interstate and intrastate goods. It also reduces indirect taxes. Read about these three kinds of GST to find out more.
Components of GST and its explanation
GST (Goods and Services Tax) comprises four main components:
- Integrated Goods and Services Tax (IGST): Levied on inter-state transactions.
- State Goods and Services Tax (SGST): Imposed by state governments on intra-state sales.
- Central Goods and Services Tax (CGST): Collected by the central government on intra-state supplies.
- Union Territory Goods and Services Tax (UTGST): Applicable to transactions in Union Territories.
- GST aims to streamline taxation by replacing multiple indirect taxes with a unified system, promoting ease of compliance and reducing tax cascading.
What is the SGST or state goods and service tax?
SGST is the tax that the state government levies on intrastate goods and service transactions. SGST includes all other taxes like entertainment tax, luxury tax, and purchase tax. UGST or union territory goods and service tax replaces SGST in union territories like Chandigarh.
What is the CGST or the central goods and service tax?
The central government levies GST on intrastate goods and service transactions. It collects the revenue generated through CGST. The government levies CGST along with SGST or UGST, and the state and centre share the revenues.
For example, you are a Bengaluru-based dealer and are selling to another dealer in Bengaluru. Since it is an intrastate sale, the government will apply both CGST and SGST. Let us say that your transaction of goods is worth Rs. 30,000, and it attracts 18% GST. Then the state government will collect 9% of this amount as SGST. The centre collects a matching amount as CGST.
What is IGST or integrated goods and service tax?
Integrated Goods and Services Tax are the tax levied on interstate goods and service transactions. It applies to imports and exports as well. Under IGST, both the centre and the state share the taxes charged.
IGST also helps you claim an input tax credit. It is a facility that checks cascading taxes and allows business owners to save at every stage of the supply chain.
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Additional read: E-Way Bill.
What is UGST or Union Territory Goods and Services Tax?
UTGST is a component of the GST regime in India that applies to the supply of goods and services within the Union Territories (UTs) of India. UTGST is levied along with Central GST (CGST) on intra-UT transactions, while integrated GST (IGST) is levied on inter-UT or inter-state transactions. UTGST is collected by the Central Government and shared with the UTs. UTGST has the same tax rates and exemptions as SGST, which applies to the states with legislatures.
The reason behind UTGST applicability in GST is that the Common State GST (SGST) cannot be applied in a Union Territory without a legislature. To address this issue, the GST Council has decided to have a Union Territory GST Law (UTGST) which would be on par with SGST. However, SGST can be applied in Union Territories such as New Delhi and Puducherry. As both have their individual legislatures and can be considered as “states” as per the GST process.
UTGST applies to only those union territories where we do not have a separate legislature and that list includes the following union territories: Chandigarh, Lakshadweep, Daman and Diu, Dadra and Nagar Haveli, Andaman and Nicobar Islands, and Ladakh.
