CGST, SGST, and IGST are classes of GST that are charged by Central and State Governments based on supply and utilization. The GST is a multi-staged and objective-based indirect tax levied on the supply of goods and services. GST is multi-staged; consequently, it is charged at each production level, and being objective-based, the tax is gathered from the ultimate point of utilization and not from any point of origin. Based on these points, the GST is partitioned into three sub-taxes, which are:
- CGST (Central Goods and services Tax)
- SGST (State Goods and Services Tax)
- IGST (Integrated Goods and Services Tax)
What is Integrated Goods and Services Tax (IGST)?
The significance of IGST is the tax collected on transactions that happen interstate. In this, the seller and consumer are located in different states. Further, IGST is likewise charged on imports and exports of goods and services and provides SEZs or Special Economic Zones activities.
On account of interstate tax collection, rather than independently charging taxes for the Center and the State, the Government collects IGST, which is later divided equally.
This includes no additional weight on the customer’s pocket since IGST is equivalent to the SGST and CGST clubbed together. It is collected by the Government to guarantee that the tax is similarly separated amongst the Center and the State Government. IGST makes the tax process hassle-free and sorts things out for the tax collectors when two states are involved rather than one.
Example of IGST
Asim from Madhya Pradesh sold goods to Pankaj from West Bengal, amounting to ₹ 1,00,000.
If the GST charged is 12%, then this 12% is IGST. Instead of two, only one tax is set that is handed over to the Central Government, out of which 6% is credited to the State of consumption.
Thus, IGST compromises both CGST-tax to the Central and SGST-tax to the state. IGST is different because instead of directly distributing the tax to the Centre and directly distributing the form, the tax is collected in an ‘integrated’ manner and distributed later.
What is Central Goods and Services Tax (CGST)?
The CGST applies to intrastate exchanges when the dealer and consumer are from the same State.
Under GST, CGST is a tax demanded on Intra State supplies of both goods and services by the Central Government and will be administered by the CGST Act. SGST will likewise be imposed on the same Intra State supply, represented distributing by the State Government.
This infers that both the State and the Central governments will consolidate their duties with a permissible income division. It is referenced in Section 8 of the GST Act that the taxes be exacted on all Intra-State supplies of goods and services, but the tax rate will not surpass 14%.
CGST is charged on all items ranging from household necessities to luxuries and manufacturing services to professional services.
Example of CGST
A manufacturer makes a product in Rajasthan and sells it only; its GST is 14%. SGST and CGST will be applicable wherein SGST (7%) will go to the Rajasthan state government, and CGST (7%) will go to the central Government.
What is State Goods and Services Tax (SGST)?
The significance of SGST is a tax collected on account of the intrastate transaction when consumption and production happened in the same state.
The State GST, as the name infers, is a tax collection mode for the State Government. It is gathered as a different tax on account of intrastate exchanges. Like CGST, it is charged across all deals and purchases and other non-exempted sales under the GST Act.
Example of SGST
Let’s suppose Rajesh is a dealer in Rajasthan who sold goods to Anand in Rajasthan worth Rs. 20,000. The GST rate is 18%, comprising a CGST rate of 9% and an SGST rate of 9%. In such a case, the dealer collects Rs. 3600 of which Rs.1800 will go to the Central Government and Rs. 1800 will go to the Maharashtra Government.
Why was GST split into SGST, IGST, and CGST?
India functions at the standards of federalism; accordingly, all states are joined under one entity. However, the State has its own defined powers as well. Therefore, both the Central and the State Governments own the ability to collect taxes. Both these frameworks of force have their duties allotted to their jobs, which expects them to gather assets as taxes.
Preceding GST, the states worked on their own when it came to taxation. The State Governments and the Center charged different circuitous taxes. However, the GST clubbed all taxes into one.
GST was carried out, keeping in view the vision of ‘One Nation, One Tax’. In this way, it lowered all current Central and State taxes into one. To guarantee hassle-free and straightforward dissemination of taxes, the GST was parted into IGST, CGST, and SGST. The split of GST into these categories united the tax structure in the country by not denying the State Government funds simultaneously.
What decides whether CGST, SGST, or IGST is applicable?
The trade is an Intra State or an Inter-State supply is essential to know to decide whether CGST, SGST, or IGST will be admissible.
Intra-State supply of goods and services is when the supplier and the consumer are in the same State. In Intra-State exchanges, a dealer needs to gather both CGST and SGST from the buyer. The CGST gets stored with Central Government, and SGST is kept with State Government.
Inter-state supply of goods and services is when the supplier and the consumer are in different states. Likewise, in export or import directly distributing goods or services or when the supply of goods or services is made to or by an SEZ unit, the exchange is thought to be Inter-State. In an Inter-State trade, a vendor needs to gather IGST from the buyer.
These are the sub-classes of GST, but if you want to know what is GST then head to our previous blog by clicking here!