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Under the GST law, the central government will collect CGST, SGST or IGST depending upon whether the transaction is intrastate or interstate.
When the supply of goods or services happens within a state called intra-state transactions, then both the CGST and SGST will be collected. Whereas if the supply of goods or services happens between the states called as inter-state transactions, then only IGST will be collected.
It is to be noted that the GST is a destination-based tax, which is received by a State in which the goods are consumed but not by a state in which such goods are manufactured. Unlike earlier when there were multiple taxes such as Central Excise, Service Tax and State VAT etc., under GST, there is just one tax with three components- CGST, SGST and IGST.
Under GST, CGST is a tax levied on Intra State supplies of both goods and services by the Central Government and will be governed by the CGST Act. SGST will also be levied on the same Intra State supply but will be governed by the State Government.
This implies that both the Central and the State governments will agree on combining their levies with an appropriate proportion for revenue sharing between them. However, it is clearly mentioned in Section 8 of the GST Act that the taxes be levied on all Intra-State supplies of goods and/or services but the rate of tax shall not be exceeding 14%, each.
Under GST, SGST is a tax levied on Intra State supplies of both goods and services by the State Government and will be governed by the SGST Act. As explained above, CGST will also be levied on the same Intra State supply but will be governed by the Central Government.
Note: Any tax liability obtained under SGST can be set off against SGST or IGST input tax credit only.
An example for CGST and SGST:
Let’s suppose Rajesh is a dealer in Maharashtra who sold goods to Anand in Maharashtra worth Rs. 10,000. The GST rate is 18% comprising of CGST rate of 9% and SGST rate of 9%. In such case, the dealer collects Rs. 1800 of which Rs. 900 will go to the Central Government and Rs. 900 will go to the Maharashtra Government.
Similar to how SGST is levied by the state governments on the intra-state supply of goods and services, Union Territory Goods and Services Tax or UTGST is levied by the Union Territory governments. It refers to the tax levied on the intra-Union Territory supply of goods and services. It is governed by the UTGST Act and is levied along with CGST.
UTGST is similar to SGST and is levied in Union Territories which do not have their own legislature. UTGST is applicable on the supplies that take place in the Union Territories of Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman and Diu, and Lakshadweep. Please note that the Union Territories of Delhi and Puducherry will fall under SGST law as they have their own legislature.
The order of ITC utilisation of UTGST is similar to SGST. ITC of UTGST should first be set off against UTGST. Any balance remaining may be used to set off any IGST liability.
Under GST, IGST is a tax levied on all Inter-State supplies of goods and/or services and will be governed by the IGST Act. IGST will be applicable on any supply of goods and/or services in both cases of import into India and export from India.
Note: Under IGST,
An example for IGST:
Consider that a businessman Rajesh from Maharashtra had sold goods to Anand from Gujarat worth Rs. 1,00,000. The GST rate is 18% referring to 18% IGST. In such a case, the dealer has to charge Rs. 18,000 as IGST. This IGST will go to the Centre.
India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes. Both the Governments have distinct responsibilities to perform, as per the Constitution, for which they need to raise tax revenue.
The Centre and States are simultaneously levying GST.
The three types of tax structure is implemented to help taxpayers take the credit against each other, thus ensuring “One Nation, One Tax”.
To determine whether Central Goods & Services Tax (CGST), State Goods & Services Tax (SGST) or Integrated Goods & Services Tax (IGST) will be applicable in a taxable transaction, it is important to first know if the transaction is an Intra State or an Inter-State supply.
Let us consider that goods worth Rs. 10,000 are sold by manufacturer A from Maharashtra to Dealer B in Maharashtra.
Dealer B resells them to Trader C in Rajasthan for Rs. 17,500.
Trader C finally sells to end user D in Rajasthan for Rs. 30,000.
Suppose the applicable tax rates for the goods sold are CGST= 9%, SGST=9%, and IGST=9+9=18%
Since A is selling this to B in Maharashtra itself, it is an intra-state sale and so, CGST@9% and SGST@9% will apply.
Dealer B (Maharashtra) is selling to Trader C (Rajasthan). Hence, this is an interstate sale, with IGST@18%.
Trader C (Rajasthan) is selling to end user D also in Rajasthan. Once again it is an intra-state sale and hence, CGST@9% and SGST@9% will apply.
How SGST, CGST and IGST will be collected?
*** Any IGST credit will first be applied to set off in this order:
Know further about how ITC optimisation works by reading our article about ITC optimisation under GST.
GST being a consumption-based tax the state where the goods were consumed(Rajasthan) will receive GST. By that logic, Maharashtra (where goods were sold) should not get any taxes. State Rajasthan and Central Government should have got (30,000*9%) = 2,700 each.
Thus, Maharashtra (exporting state) will have to transfer credit of SGST of Rs. 900 (used in payment of IGST) to the Centre.
In turn, Central Government will transfer to state Rajasthan (importing state) Rs. 450 IGST.
The above example shows the need for 3 taxes: SGST, CGST, and IGST. All 3 together will serve the two purposes of GST :
GST is a completely new tax with new concepts like ‘place of supply’ and new tax structures. This creates confusion with taxpayers who may end up paying the wrong type of GST.