Types of GST (Goods and Services Tax) in India

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Taxes, historically, have had a reputation for being intricate and demanding when it comes to compliance.

Now, imagine a simplified tax revolution!

Goods and Services Tax (GST) is a game-changer in the world of taxes. It's like a superhero, swooping in to make tax matters smoother for everyone. Think of GST as the boss of all taxes in India, applicable to goods and services for local use, creating a united tax world. GST makes taxes simple, making processes and compliances easier for businesses and tax authorities. It empowers them to navigate the complex taxation system, ensure compliance, and make informed financial decisions in an evolving economic landscape.

Crucial to businesses and consumers alike, GST has been introduced as a value-added tax, imposed on the supply of goods and services for domestic use. It is a comprehensive, unitary indirect tax regime that applies to the entire nation and has significantly eased the taxation process and administration.

However, with the advent of unified GST, issues arise as to how to divide GST between the Governments - State and Central. To further simplify this, different types of GST have been introduced to ease the distribution of taxes between the Governments. To fully understand GST, one must also learn about its types which differ based on the nature of transactions.

Let’s have a look at the different types of GST to understand the concept further and see the impact of these on you as a taxpayer.

Types of GST Tax

We have two types of GST transactions, intra-state and inter-state, to ensure equitable tax distribution between the Central and State Government while simplifying tax compliance for businesses, promoting economic unity, and streamlining the taxation of goods and services across India.

Inter-state transactions: This transaction occurs between 2 different states. The Central Government collects GST in the form of IGST from the taxpayer and further distributes / allocates the proportionate share to the respective State Governments.
Intra-state transaction: This transaction occurs within the same state only. Here the GST is divided between the Central and the respective State Government as CGST and SGST

Thus, on the basis of the differentiation between interstate and intrastate transactions, it is determined which type of GST will apply, CGST (Central Goods and Services Tax) or SGST (State Goods and Services Tax) or IGST (Integrated Goods and Services Tax) or UTGST (Union Territory Goods and Services Tax).

Types of GST in India

There are 4 types of GST in India, they are:

CGST (Central Goods and Services Tax)
SGST (State Goods and Services
IGST (Integrated Goods and Services Tax)
UTGST (Union Territory Goods and Services Tax)

The GST/ taxation rates for particular goods (identified by HSN) and services (identified by SAC) remains constant across India, only the methodology of application of GST differs based on the interstate (IGST) or intrastate supply (CGST + SGST). To understand the types, one must keep in mind that GST is a destination-based tax and the burden of tax is on the ultimate consumer. Thus, the GST amount is received by the destination state i.e. state where the goods are actually consumed and not by the state, where the goods originated from or were manufactured.

Let's look deeper into the various types to get a clear understanding on what is CGST, SGST, IGST and UTGST?

Components of GST and its Explanation

CGST (Central Goods and Services Tax): CGST is the tax collected by the Central Government. It is similar to SGST in the sense that it is also collected on an intrastate transaction (within the same state). All businesses that are registered under the GST system must file CGST returns on a regular basis and must include information on their intra-state transactions in the filings.

For instance: When a businessman from Madhya Pradesh sells items for Rs. 5,000 to a consumer in Madhya Pradesh, then equal parts of CGST and SGST will apply to the transaction. If there is an 18% GST charge, it will be split 9% into CGST and 9% to SGST. In this instance, the supplier would charge total of Rs.5,900 where Rs,5,000 is the taxable value and Rs.900 is the total GST amount which is equally distributed between the Central Government as CGST Rs. 450, and similar amount to the State Government as SGST.^[1]

SGST (State Goods and Services Tax): Similar to CGST, SGST is the tax collected by the state Government through an intrastate transaction. However, the state imposes SGST only on any commodities or services that are bought or sold within the state. The money collected through SGST is claimed and governed only by that state. After the introduction of the GST system, many state-level indirect taxes were subsumed into the SGST, simplifying the tax structure within each state. However, SGST is not a single, unified tax, and states retain the power to levy certain additional taxes.

For instance: As per the example provided above, GST is split equally between Central and State Governments in intrastate transactions. The merchant would charge a total of Rs. 5,900, and the State Government will charge GST in the form of SGST of Rs. 450, similar to the Central State Government.

IGST (Integrated Goods and Services Tax): It is a tax under the GST system that is imposed on imports, exports, and interstate (between two states) sales of goods and/or services. The Central Government collects GST in the form of IGST.

For instance: When a businessman from Madhya Pradesh sells items for Rs.5,000 to a consumer in Uttar Pradesh, then IGST will apply to the transaction. If there is an 18% GST charge, the merchant would charge a total of Rs.5,900. IGST will be Rs.900 and will be collected by the Central Government.

Thus, to differentiate between SGST, CGST and IGST; On one hand, CGST and SGST apply to intrastate transactions (inside the same state) while IGST applies to interstate transactions (between different states). Further, in intrastate transactions, GST is divided equally between the Central and State Governments in the form of CGST and SGST, as explained above. Whereas GST under interstate transactions is collected only by the Central Government in the form of IGST.^[2]

UTGST (full form- Union Territory Goods and Services Tax): UTGST is imposed on the supply of products and/or services in the Union Territories (UTs) of India. In the Andaman and Nicobar Islands, Chandigarh, Daman Diu, Dadra Nagar Haveli, and Lakshadweep, products and/or services are subject to the UTGST. The Union Territory Government is in charge of collecting the UTGST revenues.

It is important to note here that there is no specific SGST, CGST, UTGST, or IGST rate, the GST rate is fixed at various slabs of 5% GST, 12% GST, 18% GST, and 28% based on the supply made determined by HSN or SAC. Once the GST is calculated and paid, it is distributed to the Central, State, and UT depending on the nature of the transaction.^[3]

^[1] CGST Act, of 2017

Difference Between Types of GST

Type of GST	Jurisdiction	Applicability	Authority benefited	Priority of text credit use
CGST	Central Government	Intra-state transactions	Central Government	CGST IGST
SGST	State Government	Intra-state transactions	State Government	SGST IGST
IGST	Central Government	Inter-state transactions	Central Government	IGST CGST SGST
UTGST	UT Government	Intra-union territory transactions	Union Territory (UT) Government	UTGST IGST

Taxes Replaced by GST

GST was introduced with a vision of “One Nation, One Tax” to minimise the complexity of multiple registrations for indirect taxes. Thus, GST merged many Central and State indirect taxes together such as:

Central Taxes

State Taxes

● Central excise duty

● Central sales tax

● Service tax

● Additional duties of customs

● Additional duties of excise

● Excise duty levied under the textile products

● Purchase tax

● Entry Tax

● VAT

● Surcharge and Cess

● Taxes on lottery, gambling and betting

● Taxes on advertisements

● Luxury Tax

● Entertainment Tax

Conclusion

With the advent of GST, the seamless movement of goods and services across state borders have been ensured. Through the harmonization of the four types of GST structures the cascading effect of multiple taxes has been eliminated, reducing the tax burden on consumers and making taxation more transparent and efficient.

As a business or taxpayer, one is often curious about who actually their money is being sent to and where it is used. With the differentiation of GST into 4 types this question is has been easily answered. The differentiation in GST has been made to determine which Government is ultimately collecting the GST.

Understanding the nuances of these different GST categories is essential for businesses and individuals alike, enabling them to navigate the tax landscape effectively, remain compliant, and optimize their financial strategies. In essence, GST has not only simplified taxation but has also played a pivotal role in fostering economic growth and promoting ease of doing business in India.

Kotak Mahindra Bank is an authorized bank to collect Goods & Services Tax (GST) through its digital integration with the GST portal. Individual and corporate customers can make end-to-end tax payments on this portal simply by selecting Kotak Net Banking as a payment option or pay using Credit Card/Debit Card or UPI of any bank via the Kotak Payment Gateway. Customers can also make GST payments through cash, cheque or DD by selecting “Over-the-Counter” mode of payment while creating a challan on the GSTN portal.

Frequently Asked Questions

Q1: What is the full form of CGST?

CGST stands for Central Goods and Services Tax in its entirety.

Q2: What is the full form of IGST?

IGST stands for Integrated Goods and Services Tax.

Q3: What is the full form of SGST?

SGST stands for State Goods and Services Tax.

Q4: Who collects the CGST amount?

The CGST amount is collected by the Central Government.

Q5: Who collects the IGST amount?

The Central Government collects the IGST amount.

Q6: Who collects the SGST amount?

The State Government collects the SGST amount.

Q7: Who collects the UTGST amount?

The UT Government collects the UTGST amount.

Guide to the Various Types of GST in India