SGST: State Goods and Services Tax

SGST or State Goods and Services Tax is one of the crucial components of the Goods and Services Tax. The GST law introduced a new method of indirect tax administration, governance, and compliance in India. Conceptual and practical clarity about the fundamental components of the GST can help businesses better manage their tax liabilities and comply with regulatory requirements. This article discusses everything that you must know about SGST, its applicability and benefits in comparison to pre-GST taxation. 

What is SGST?

The SGST full form is State Goods and Services Tax. SGST is a component or part of a GST tax rate along with the CGST (Central Goods and Services Tax) when any goods or services are sold within the state of India. It is imposed and collected by individual state governments on any taxable goods or services as tax revenue for the respective state. 

SGST Applicability

The State Goods and Services Tax applies to the supply of goods, services, or both within the geographical boundary of a single state. 

For example, a registered Kolkata-based seller supplies 100 kg of cereals to a consumer based in Kolkata or even any other district of West Bengal for Rs.100. Suppose the total GST rate is 12%. Then, an SGST of 6% will be applied to the total value of the supply of 100 kg of cereals along with an equivalent CGST as per the applicable GST rate, and the collected tax revenue will be received by the government of West Bengal. 

However, SGST will not apply if the same Kolkata-based seller supplies to a consumer based in Ranchi, Bhubaneswar, or other places outside West Bengal's boundary. 

The SGST is not applicable for: 

1. Interstate transactions: When the supply of goods or services occurs between two different states, Integrated GST will apply.   
2. Exempt goods and services: Goods and services that are exempt from GST since no GST is chargeable.   
3. Imports/Exports: Goods and services received from outside India or supplied to those outside India, respectively since Integrated GST will apply.   
4. Suppliers exempt from GST registration: GST registration is not mandatory for suppliers with an annual turnover of less than Rs.40 lakhs (Rs.20 lakhs for services). SGST is not mandatorily applicable to supplies from such businesses. 

 SGST Rate Structure

The rate of applicable SGST varies with the type of goods and services as per the following structure: 

Features of SGST

As per the CGST Act, some of the unique features of State Goods and Services Tax are: 

• Only a state government can levy SGST on intra-state transactions. 
• Tax revenue collected through SGST is transferred to the respective state government's account. 
• Administration, governance and compliance of SGST happen under the purview of the state-specific SGST acts. Examples are the Bihar Goods and Services Tax Act, 2017, Gujarat Goods and Services Act, 2017, etc. 
• State legislatures have the authority to amend state-specific SGST acts, however, the basic layout, like taxable event, tax valuation, classification, follows the Central GST Act, 2017. 

How to Calculate SGST?

For calculating the SGST applicable on any supply transaction, you must know the SGST rate applicable to the item or items being sold and supplied and the selling prices.

The formula for calculating SGST:

 SGST amount = Selling price * SGST Rate

SGST Example

For example, you are buying a laptop from a shop in Kolkata. The laptop's price is Rs.60,000, and the applicable rate of GST is 18%. The supply is within a single state (West Bengal), so it will be considered an intra-state transaction. The applicable GST rate will be distributed equally between the Central and the state governments. As a result, the applicable rate of SGST will be 9% (half of 18%). The other 9% will be CGST or Central GST. 

Based on the information in our example and the formula, 

SGST Rate - 9%

Selling Price - Rs.60,000

SGST amount - Rs.60,000 * 9% = Rs.5,400

CGST amount - Rs.60,000 * 9% = Rs.5,400  

Total GST amount - SGST + CGST = Rs.10,800  

Total sales value of the laptop - Rs.60,000 + Rs.10,800 = Rs.70,800   

Benefits of SGST

As a crucial part of the GST, the state goods and services tax offers several benefits compared to erstwhile complex indirect taxation systems. Some of these benefits are:

• Simplification of indirect taxation 

Before the introduction of GST, several indirect taxes like VAT, CST, excise duty, and service tax, were applicable and varied from one state to another. The SGST, as part of the GST system, has unified and simplified indirect taxes applicable across states. 

• Consistency and transparency in tax structure  

Multiple indirect taxes in the pre-GST era used to cause a lot of complications in tax calculation. A single rate structure of the SGST system has removed such complications. 

• Improved tax revenue collection for state governments  

Complexities in tax incidence and multi-layered indirect tax structures during the pre-GST era gave rise to tax evasion, which affected state government revenue collection. SGST has streamlined and improved tax collection for the state governments. 

• Ease of claiming ITC 

For intrastate transactions, SGST has made it easier for registered entities to claim input tax credits on business purchases. 

How can businesses claim Input Tax Credit (ITC) on SGST?

As per the GST Act, Input Tax Credit or ITC allows businesses to deduct the indirect taxes they have already paid while purchasing their inputs of production from their tax liability on sales. 

Some of the prerequisites for claiming ITC on the SGST are: 

• The entity claiming ITC on SGST paid must be GST registered. 
• A valid tax invoice from the input supplier clearly mentions the applicable SGST rate, the total SGST paid, the HSN of the items supplied, and other GST requirements.  
• Verifying the supplier's invoice in the GST portal's IMS dashboard is recommended. 
• Must file GST returns (GSTR-3B) on time for the relevant tax period.
• ITC of SGST can be utilised for set off against the liability of SGST or IGST.
• Input tax credit of SGST cannot be utilised to pay CGST liability.

The GST portal automatically matches the claim with tax records filed by the respective supplier and processes the claim. 

For example, consider ABC Ltd, a furniture manufacturer in Patna, Bihar. It purchased plywood worth Rs.1,00,000 and paid SGST worth Rs.9,000 at a rate of 9%. ABC Ltd then manufactured a table and chair set using that plywood and sold the same set for Rs.1,50,000. The SGST liability becomes Rs.13,500 at a rate of 9%.

• The company can claim the Rs.9,000 paid on the plywood purchase as an offset from its SGST liability on selling the table chair set. 
• Actual (net) SGST liability will be (SGST on outward supply - ITC) = (Rs.13,500 - Rs.9000) = Rs.4,500.

Effective use of the ITC helps businesses reduce their GST payment burden and, thus, improve cash flow. Businesses can also choose to carry forward excess ITC to subsequent tax periods.