UTGST: Union Territory Goods and Services Tax

As a business owner, one aspect needs rigorous understanding—tax. If we examine this subject, we know that GST branches out into central, state, and union territories. A question also arises here—what is the tax framework, its rates, and subsequent procedures if you are doing business in a union territory? 

Undoubtedly, the government has simplified the trade by introducing UTGST. However, this blog is only going to fix your understanding of UTGST. The purpose is to make you aware of how UTGST works in a union territory. 

What is the full form of UTGST?

Union Territory Goods and Services Tax is the full form of UTGST. 

UTGST Applicability

UTGST applies to the supply of goods or services within a Union Territory (intra-UT supply). It applies to the supply, which covers all individuals and businesses. There are 8 union territories on which UTGST is applicable. You need to take a sharp look at the table.

List of UTGST States

Note: UTGST does not apply in Union Territories like Delhi and Puducherry as they follow state GST rules.

UTGST Rate Structure

The GST rates of States and Union Territories are similar. However, the government always treats the matter of states and UTs separately, as would the taxation. The rates of the CGST are also equal to the rates of the UTGST.  

Let us understand this with an example 

• If you see a product with 5% GST, 2.5% is for UTGST, and 2.5% is for CGST.
• Similarly, if the slab is 18%, it is divided equally between UTGST and CGST (i.e. 9%).

Below is a detailed table showing the GST slab rates and their respective UTGST and CGST distributions:

How to Calculate UTGST?

First, you need to follow these steps: 

1. Find the taxable value
2. Check the UTGST rate
3. Use the UTGST  formula to calculate the amount 

UTGST = (Value of Goods) × (UTGST Rate ÷ 100)

Benefits of UTGST

1. GST simplifies the taxation process by allowing taxpayers to avoid juggling multiple types of tax (which existed before GST).
2. A single tax system helps taxpayers expand their businesses to other union territories.
3. The combined tax system of UTGST reduces the chances of tax fraud, making the system more transparent and responsible.
4. Using UTGST has generated revenue for both the Central and Union Territory governments, which helps pay for building projects and social aid programs.

How can Businesses claim Input Tax Credit (ITC) on UTGST?

Claiming the right Input Tax Credit (ITC) is essential for every business, failing which can make them prone to notices.

How to Claim ITC on UTGST:

1. Be GST-Registered: Ensure your business is registered under the GST system.
2. Hold a Valid Tax Invoice: Have a proper invoice or debit note from your supplier.
3. Receive the Goods or Services: Make sure you've received the items or services listed in the invoice.
4. Supplier's Tax Payment: Confirm that your supplier has paid the GST to the government.
5. File GST Returns: Submit your GST returns, like GSTR-3B, on time.

Once you've claimed the ITC, you can use it in this order:

1. First: Apply it to pay your UTGST liability.
2. Second: If there's any credit left, use it to pay Integrated Goods and Services Tax (IGST).

Note: You cannot use UTGST credit to pay State Goods and Services Tax (SGST). This separation ensures that UT and state taxes remain distinct.

Also, You must claim your ITC by the earlier of these dates:

• 30th November of the year following the financial year of the invoice.
• The date you file your annual return for that financial year.

UTGST Example

Think about it—if the total GST rate is 18%, it's split equally into CGST and UTGST, so UTGST is 9%. Now, let's test this logic: for goods worth ₹50,000, the formula is:

UTGST = ₹50,000 × 9% = ₹4,500

Exemption from UTGST

1. Basic necessities like unprocessed food items, healthcare, and education services.
2. Goods and services provided to the Central or State Government or local authorities.
3. Goods or services exported outside India are exempt from UTGST.
4. Categories like renewable energy equipment or public welfare services.

Besides this, under Section 8 of the UTGST Act, the Central Government can also exempt certain goods or services in the public interest, either entirely or with conditions. These exemptions aim to reduce the tax burden on essential items and promote accessibility.

UTGST has undoubtedly made things easier for businesses in Union Territories. It effectively expands the tax base and reasonably ensures healthy competition. Furthermore, drastically easing administrative burdens allows firms to focus more efficiently on growth and innovation. Ultimately, this unified tax system remarkably promotes efficiency, consistently fosters competition, and reliably creates a healthier business environment for everyone.