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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. This transition was aimed at streamlining the taxation process in India and remodelling its $2.4 trillion economy. 

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.

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.

Types of GST

The GST regime 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

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 centre 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 on 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:

SGST CGST IGST
A trader from Maharashtra has sold goods to a consumer in Maharashtra worth Rs. 10,000. 

Applicable GST will be divided between SGST and CGST. 

A trader from Maharashtra has sold goods to a consumer in Maharashtra worth Rs. 10,000. 

Applicable GST will be partly CGST and SGST.

A trader from Maharashtra has sold goods to a consumer in Karnataka worth Rs. 10,000. 

Applicable GST will be IGST.

If the GST rate charged is at 18%, this tax will be divided between SGST and CGST as 9% each. 

Total amount charged by the trader, in this case, stands at Rs. 11,800.

If GST rate charged is at 18%, this tax will be divided between SGST and CGST as 9% each. 

Total amount stands at Rs. 11,800.

If the rate of GST charged is 18%, the entire amount is to be paid as IGST.

The total amount charged by the trader stands Rs. 11,800.

The amount of GST is Rs. 1800. The amount of GST is Rs. 1800. The amount of GST of Rs. 1800.
SGST is at Rs. 900 and CGST is Rs. 900. CGST is at Rs. 900 and SGST is Rs. 900. The IGST is Rs. 1800.
Rs. 900 SGST goes to the Maharashtra Government. The Central Government earns Rs. 900 as CGST. The Central Government earns Rs. 900 as CGST.  The Central Government gets Rs. 1800 as IGST.

Difference Between the Types of GST

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

Types of GST Collecting authority  Priority of Tax Credit use  Applicable transactions  Benefiting authority
SGST State Government  SGST, IGST Intra-state transactions/transactions within a single state State Government
UGST Union Territory (UT) Government  UTGST, IGST Within a Union Territory Union Territory (UT) Government
CGST Central Government  CGST, IGST Intra-state transactions/transactions within a single state  Central Government
IGST Central Government IGST, CGST, SGST Inter-state transactions/transactions between two states or a state and a Union Territory (UT) State Government and Central Government

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 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.

The Government of India implemented GST to remove the cascading effect of taxation. This regime harmonises the tax laws, processes and rates across India, thereby simplifying the country’s tax structure.

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