Goods and Services Tax was introduced in India several times by different governments before it was actually implemented from July 1, 2017, onwards. The idea of bringing about GST was to have ‘One Nation One Tax’. GST subsumed all the taxes that prevailed in the country earlier, and are now categorised under:-
- Central Goods and Services Tax: Central Goods and Services Tax or (CGST) subsumed all the taxes levied by the central government. For example central excise duty, central surcharges and cess and other such central indirect taxes that were earlier applicable.
- State Goods and Services Tax: State Goods and Services Tax or (SGST) subsumes all taxes levied by the state government, that’s state indirect taxes. For example VAT, sales tax, state cesses and surcharges, etc.
- Integrated Goods and Services Tax: Integrated Goods and Services Tax or (IGST) levied on interstate movement of good and services
There are few products that still do not come under the ambit of GST and sales tax/VAT are still applicable on them.
For example alcohol, petrol, diesel, natural gas, airline fuel and a few others. Examples of services where GST is not applicable are wages and salary, electricity and a few others. While the government wants to limit the price of alcohol and limit consumption and hence alcohol has not been brought under the GST ambit, petrol continues to bring high amounts of revenue for the states.
Let’s understand CGST in a bit more detail.
What is CGST?
CGST stands for Central Goods and Services Tax. It subsumes all the taxes that were earlier applicable as central indirect taxes. They are levied by the central government for intrastate movement of goods and services. Intrastate means within one state. The Central Goods and Services Tax Act 2017 states that CGS applies to the whole of India except Jammu and Kashmir.
Actually, on intrastate movement, both Central Goods and Service Tax and State GST are applicable.
CGST revenues go to the central government and SGST revenues go to the respective state government.
For example, a manufacturer makes a product in Maharashtra and sells it within the state only, SGST and CGST both will be applicable wherein SGST will go to Maharashtra state government’s coffers and Central Goods and Service Tax will go to the central government’s kitty.
Maharashtra has been topping the list of highest GST collections by a state for long, followed by Karnataka.
In almost all cases, the total tax liability is divided into two equal halves and distributed equally between state and central government.
These rates are decided by the GST Council. The GST Council meets for a couple of items in a year as and when required however there is no regular fashion. The last time the GST council met was September 2019. These rates are as of October 1, 2019.
There are around six slabs of rates.
The most commonly used products that are subjected to a 5% GST rate are cream and yogurt, paneer, cashew nut, raisins, fruit and nuts and a few others. Now for these products, 2.5% goes to the state government and the rest 2.5% goes to the CGST. Many household items are covered in this section.
6% GST rate is the second slab of rates under GST. Citrus fruits, jams, sausages, 20l drinking water, statues, pots and jars, geometry box, cutlery, railway coaches, printer ink, wooden toys and more. Here for every product, 6% goes towards CGST and 6% goes towards SGST. This section covers processed food to a great extent.
The next GST slab rate is 18%. Examples of products being taxed at 18% are bindis, chocolates, fountain pens, tripods, soap, toothpaste and industrial intermediate products are therein this slab. Here 9% goes towards SGST and 9% goes towards CGST. The central goods and services tax act 2017 has a full list of items.
Examples of products being taxed at a GST rate of 28% are cigarettes, caffeinated beverages, pan masala, motor cars and motorcycles, air conditioners, refrigerators etc. Mainly luxury items are covered in this sector. In this, 14% goes towards SGST and 14% goes towards CGST.
Coins, gold, silver, platinum, imitation jewellery, etc are taxed at 3%. Here 1.5% goes towards SGST and 1.5% towards CGST.
Precious stones are taxed at 0.25% where 0.125% goes towards CGST and 0.125% goes towards SGST.
There are also some products that are taxed at 0%, basically they are tax free.
Mammals, live swine, live bovine mammals, birds, insects, fish, curd, lassi, buttermilk, bananas, apples, grapes, human hair, sanitary napkins among others.
The central GST Act 2017 has a full updated list of all items under all GST tax slabs.
Why are there three categories in GST?
If the main aim of GST is One Nation One Tax then why do we have three categories of GST? The reason is that India is a federal country. We have too many layers and levels of business. The federal system in this context means that both state governments and central governments are allowed to levy and collect taxes. In the old system, we had varying indirect taxes that were levied on the state level and central government level. Now all the taxes are subsumed under one.
So for business services and goods sold and bought within a state, there is a different system where state GST and central GST is applicable and both take their share. For transactions between states, for goods sold and services rendered, IGST is levied.
IGST, numerically, is always a combination of CGST and SGST. In the case of IGST, it is the seller that deposits the tax at the IGST rate with the central government after which the tax s shared with states
For example, in the 18% GST rate slab:
- IGST for inter state movement is 18%
- CGST: 9%
- SGST: 9%