Types of GST

The Goods and Service Tax Act was passed in the Indian Parliament on March 29th, 2017, which subsequently came into effect on July 1st, 2017. It was hailed as a significant tax reform for the country, replacing the pre-existing array of indirect taxes, such as excise duty, VAT, service tax, etc. 

What is GST?

Goods and Services Tax (GST) is a value-added tax levied on the supply of goods and services for domestic consumption. GST is, therefore, an all-encompassing, single indirect tax law for the entire country.

This tax is included in the final price of a product. A customer who buys said product pays its price inclusive of the GST. The business or seller then forwards its GST portion to the government.

The Central Government of India levies this tax. In the case of intrastate transactions, this tax is distributed between the central and state government under CGST and SGST.

Objective of GST

• The elimination of multiple tax systems.
• Increase in compliance with businesses.
• To reduce the prices.
• Boost the country’s complete revenue.
• For higher efficiency and productivity.

Replaced Taxes with GST

• VAT
• Octroi
• Entertainment Tax
• Tax on Lottery
• Luxury Tax
• Purchase Tax
• Service Tax
• Additional Excise Duty
• Central Excise Duty
• And more

Different Types of GST Tax

The structure of GST takes into account the type of transaction, depending on which the tax amount is levied –

• Inter-State transactions

It is a transaction that takes place between two states. For instance, a supplier supplies iron ore from Jharkhand to a consumer in West Bengal. The GST, thus collected, is divided between the Central government and the West Bengal government (State of consumption).

• Intra-State transactions

When a transaction is carried out within a State, it is an intra-state transaction. For example, a business in Jharkhand supplies 1 tonne of iron-ore to a consumer within the State. The GST then diverts to the Centre government and the Jharkhand government. 

Based on this nature of transactions, there are primarily three different types of GST – 

• State Goods and Services Tax or SGST
• Central Goods and Services Tax or CGST
• Integrated Goods and Services Tax or IGST

Components of GST

SGST

A State government levies SGST on the intra-state transactions of goods and services. The revenue collected is earned by the state government wherein this transaction takes place. SGST subsumes earlier taxes like purchase tax, luxury tax, VAT, Octroi, etc. 

For union territories like Chandigarh, Puducherry and Andaman and Nicobar Islands, a Union Territory Goods and Services Tax or UGST replaces SGST. 

CGST

The Central government levies CGST on the intra-state transactions of goods and services. It is levied alongside SGST or UGST, and the collected revenues are shared equally between the center and the state.

IGST

When a transaction of goods and services is inter-state in nature, an IGST is levied on them. It is applicable to imports and exports as well. Revenues generated through this tax are shared between the state and the central governments. 

Current Application of the Different Types of GST

The table below contains a case in point that elaborates on the application of these types of GST:

Difference Between the Types of GST

Various types of GST tax have their inherent differences which are summarised in the table below:

Who is Liable to Pay GST?

The following categories of persons are liable to pay GST –

• Individuals registered under GST and making taxable supplies.
• GST registered persons are required to pay under the reverse charge mechanism.
• Persons registered under GST and required to deduct tax at source (TDS).
• E-commerce operators registered under GST.
• E-commerce operators registered under GST are required to collect tax at source (TCS).
• Individuals supplying goods or services on behalf of a supplier or manufacturer (agents).

Goods Exempted from GST Payment

Like all other taxes, the GST exempts certain goods and services from ensuing liability. Exemptions under GST contain an extensive list of goods, which include the following –

• Food: Fruits and vegetables, cereals, meat, and fish, etc.
• Raw materials: Cotton for khadi yarn, handloom fabrics, unprocessed wool, raw silk, raw jute fibre, etc.
• Instruments/Tools: Agricultural tools, tools for differently-abled individuals.
• Miscellaneous: Vaccines, journals, newspapers, maps, books, non-judicial stamps, articles of paper pulp, etc.