What is CGST, SGST, UTGST & IGST?

Time to read: 7 Mins | May 8, 2018

The Goods and Service Tax (GST) regime, introduced on July 1, 2017, is one of the most significant and revolutionary indirect tax reforms in India. No wonder it took almost a decade before it was finally implemented.

GST subsumed a number of indirect taxes levied by the Central and State Governments. Taxes such as Central Excise duty, Service Tax, VAT, Purchase Tax, Central Sales Tax, Entry Tax, Local Body Taxes, Octroi, Luxury Tax, etc., are now non-existent.

The aim of GST is to mitigate cascading or double taxation.

Read here to understand the benefits of GST to the consumer

Under GST, there are broadly five tax slabs: 0%, 5%, 12%, 18% and 28%. An additional cess applies for demerit goods. A GST rate of 3% applies to precious metals such as gold, while unworked diamonds and precious stones attract a rate of 0.25%.

While you may be familiar with the term GST, on an invoice the total GST rate is provided as CGST+SGST, or CGST+UTGST, or just IGST.

You’re probably wondering… What do these terms signify and why is the GST rate split?

Let’s understand this better…

The Dual GST Model

In India, both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislations. The fiscal powers between the Centre and the States are clearly demarcated in the Constitution with almost no overlap between the respective domains. Thus, there is a dual tax in the form of Central GST (CGST) and State GST (SGST) or Union Territory GST (UTGST).

Inter-state supply of taxable goods or services will be subject to Integrated Goods and Service Tax (IGST). IGST rate will be as per the applicable GST rate of the goods or service, but it is collected by the Centre to avoid a disruption in the credit chain. The tax collected under IGST shall be apportioned between the Union and States in the manner as may be provided by Parliament, by law on the recommendations of the Goods and Services Tax Council.

Import of goods or services are treated as inter-State supplies and would be subject to IGST.

The Centre and States jointly decide the applicable GST rate. The GST Council notifies the final GST rate for goods and services.

Now that you know the benefits of GST, let’s take a closer look at the different types of GST:

What is CGST?

Central Goods and Service Tax or CGST refers to the tax levied by the Central Government on the transaction of goods and services. The tax collected under the head “CGST” is payable to the centre.

The CGST is charged to compensate the centre for the earlier taxes in the form of Central Excise Duty, Service Tax, Duties of Custom, surcharges, cesses, etc. The CGST is charged along with SGST or UTGST, as per the Dual GST regime.

The applicable GST rate for goods or services is divided equally over CGST and SGST/UTGST.

What is SGST?

State Goods and Service Tax or SGST represents the tax levied by the State Government on the transaction of goods and services within a state. SGST is charged along with CGST and is levied by all states and two union territories of Puducherry and Delhi, as they have their own legislative assembly and council.

The tax revenue under SGST is transferred to the State Government or the eligible Union Territory, where the transaction takes place.

SGST replaces the State VAT, Central Sales Tax, Luxury Tax, etc. As mentioned earlier, the SGST rate is equal to the CGST rate that is charged on the base price of the product or service.

What is UTGST?

Union Territory Goods and Service Tax or UTGST is similar to SGST, however, here the tax collected goes to the administration of the union territory. Thus, like SGST, UTGST is charged in addition to the CGST.

UTGST applies to the five Union Territories without legislatures, namely — Andaman and Nicobar Islands, Dadra and Nagar Haveli, Chandigarh, Lakshadweep, and Daman and Diu.

How is CGST and SGST or UTGST applied?

Let’s take a simple example, if you purchase a laptop worth Rs 50,000 in Maharashtra, a GST rate of 18% will apply. However, in the bill you will notice that the total GST is broken up in to CGST @9% and SGST @9%. Thus, 9% of Rs 50,000 or Rs 4,500 will go in to the coffers of the central government. The government of Maharashtra claims the other 9% under SGST. Thus, your total tax of 18% or Rs 9,000 paid is equally divided and transferred the central and state government respectively.

Had you made the purchase in Chandigarh, a union territory without legislature, instead of SGST an equivalent UTGST would apply. Thus, Rs 4,500 each will go to the central government and the administration of the union territory.

What is IGST?

While CGST, SGST, & UTGST applies to the supply of goods or services within a state, additionally, there needs to be a uniform taxation for inter-state supply of goods and services. Thus, the tax on inter-state supply of goods and services is known as the Integrated Goods and Service Tax or IGST.

IGST abolishes the earlier Central Sales Tax (CST) Act, 1956, which regulated the inter-state trade or commerce. However, the CST suffered from several shortcomings that resulted in cascading of tax (tax on tax) in the supply chain, as input tax credit was not allowed to the buyer.

The IGST model monitors the inter-state trade of goods and services and ensures that the SGST component accrues to the consuming State. It would maintain the integrity of Input Tax Credit chain in inter-State supplies. The IGST rate would broadly be equal to the CGST rate plus SGST rate. The Central Government levies IGST on all inter-State transactions of taxable goods or services.

IGST will apply in the following instances:

• Supply of goods from one State or Union Territory to another State or Union Territory
• Supply of services from one State or Union Territory to another State or Union Territory
• Import of goods till they the cross customs frontier
• Import of services
• Export of goods or services
• Supply of goods/services to/by SEZ
• Supplies to international tourists
• Any other supply in the taxable territory that is not intra-State – supply of goods or services within the State or Union Territory.

An example when IGST applies

Consider you are a manufacturer based in Maharashtra and you sell goods to a company based in Tamil Nadu. We assume the applicable GST rate of the product is 12%. Since the goods are being transferred inter-state, an IGST of 12% will apply. This IGST is paid to the central government.

To summarise, how the different types of GST are levied:

So to bring it all together, under GST there are four types of taxes levied. If the sale of goods or service is within the same state or union territory, CGST and SGST, or CGST and UTST will apply as applicable. If it is an interstate supply, then IGST will apply.

Now, let’s consider the sale of goods worth Rs 1 lakh that attracts an 18% GST. In the first transaction, the sale takes place within the state of Maharashtra. As it is an intra-state transfer, CGST and SGST will apply.

In the second transaction, the sale of goods is inter-state, between Maharashtra and Chandigarh. Thus, IGST of 18% is applicable.

The third transaction takes place within the Union Territory of Chandigarh, hence, CGST and UTGST will apply.

The GST will prevent a cascading of taxes by providing a comprehensive Input Tax Credit mechanism across the entire supply chain. The seamless availability of Input Tax Credit across goods or services at every stage of supply will enable streamlining of business operations.

To know more about GST and its impact on your business, download Axis Bank’s exclusive guides here – Impact of GST. You may also have a look at Axis Bank’s Video Tutorials here.

Axis Bank customers can also avail of special discounts on GST related services. Check them out here.

Happy Banking!

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.