When learning about Goods and Service Tax, the first question that comes to the mind of almost every person is: What is IGST, CGST, UTGST, and SGST? In the beginning, it was stated that almost all indirect taxes will be merged into a single tax called Goods and Services Tax, and on the other hand. However, we finally got four taxes as IGST, CGST, UTGST, and SGST. In this comprehensive guide by H&R Block, you will learn about all these types of GST in detail with examples.
Since GST subsumed indirect taxes of both central government (excise duty, service tax, custom duty, etc.) and state governments (VAT, Luxury tax, etc.), both the governments now depend on GST for their indirect tax revenue. Therefore, the GST rate is composed of two rates. Intra-state transactions will carry one of CGST and one of SGST (in case of state) or CGST and UTGST (in case of union territory). Therefore, while making an intra-state sale (i.e., sale within the same state), the CGST collected will go to the central government and the SGST collected will go the respective state government in which sale is made. Similarly, SGST or UTGST are replaced with IGST when intra-state transactions are involved.
Hence, you can say that there are four types of GST:
CGST full form is Central Goods and Services Tax.
CGST refers to the Central GST tax that is levied by the Central Government of India on any transaction of goods and services tax taking place within a state. It is one of the two taxes charged on every intrastate (within one state) transaction, the other one being SGST (or UTGST for Union Territories). CGST replaces all the existing Central taxes including Service Tax, Central Excise Duty, CST, Customs Duty, SAD, etc. The rate of CGST is usually equal to the SGST rate. Both taxes are charged on the base price of the product. See the example below to understand it better.
e.g. – In the example above, when Suresh sales a product to Pradeep in the same state (Rajasthan), he has to pay two taxes. CGST is for the central government while SGST is for the state. The rate of CGST is 9%, same as SGST. After the application of CGST (9% of Rs 10,000), the final cost of the product will become Rs 11,800.
As you can probably guess, all the taxes in all the conditions above are borne by the end consumer in the final cost, not by the manufacturer or the dealer of the product or service. Since GST is levied on consumption, the state where the product is originally manufactured is not entitled to the tax collected. If the manufacturing state levies a tax, the same will be transferred to the consuming state through the Central government.
SGST full form is State Goods and Services Tax.
SGST (State GST) is one of the two taxes levied on every intrastate (within one state) transaction of goods and services. The other one is CGST. SGST is levied by the state where the goods are being sold/purchased. It will replace all the existing state taxes including VAT, State Sales Tax, Entertainment Tax, Luxury Tax, Entry Tax, State Cesses and Surcharges on any kind of transaction involving goods and services. The State Government is the sole claimer of the revenue earned under SGST. Let’s understand this with an example.
e.g. – Suresh from Rajasthan wants to sell some goods to Pradeep in Rajasthan. The product, originally priced at Rs 10,000, will attract GST at 18% rate comprising of 9% CGST rate and 9% SGST rate. The SGST tax amount here is Rs 900 (9% of Rs 10,000) which is fully claimed by the Rajasthan State Government. The rate of the product after SGST will be Rs 10,900.
IGST full form is Integrated Goods and Services Tax.
Integrated GST (IGST) is applicable on interstate (between two states) transactions of goods and services, as well as on imports. This tax will be collected by the Central government and will further be distributed among the respective states. IGST is charged when a product or service is moved from one state to another. IGST is in place to ensure that a state has to deal only with the Union government and not with every state separately to settle the interstate tax amounts. Let’s try to understand IGST with an example.
e.g., – Ramesh is a manufacturer in Rajasthan who sold goods worth Rs 10,000 to Suresh in Rajasthan. Since it is an interstate transaction, IGST will be applicable here. Let’s assume the GST rate is 18% for the particular item. So, the IGST amount charged by the Central Government will be Rs 1800 (18% of Rs 10,000), and the refined rate of the product will be Rs 11,800.
Now, GST is a consumption tax that means only the state where the goods are actually consumed will get the tax benefits, irrespective of the manufacturing state.
UTGST full form is Union Territory Goods and Services Tax.
The Union Territory Goods and Services Tax, commonly referred to as UTGST, is the GST applicable on the goods and services supply that takes place in any of the five Union Territories of India, including Andaman and Nicobar Islands, Dadra and Nagar Haveli, Chandigarh, Lakshadweep and Daman and Diu. This UTGST will be charged in addition to the Central GST (CGST) explained above. For any transaction of goods/services within a Union Territory: CGST + UTGST
The reason why a separate GST was implemented for the Union Territories is that the common State GST (SGST) cannot be applied in a Union Territory without legislature. Delhi and Puducherry UTs already have their own legislatures, so SGST is applicable to them.
|Types of Differences||CGST||SGST||IGST||UGST/UTGST|
|Applicable transactions (Goods & Services)||Intrastate (Within one state)||Intrastate (Within one state)||Inter-state (between two states or one state and one UT) and imports||Within one Union Territory (UT)|
|Collected by||Central Govt.||State Govt.||Central Govt.||UT Govt.|
|Benefitting Authority||Central Govt.||State Govt.||Central Govt. & State Govt.||UT Govt.|
|Tax Credit Use Priority||CGST
Similar to every other type of tax, GST also has provisions to give the benefits of tax credits. The credits will be applicable to the subsequent taxes on the same product or service. All three IGST, SGST and CGST credits are usable against each other. Any IGST credit will be first used to deal with IGST tax, then CGST, and then to set off SGST.
You must also by now have understood the need for 3 different taxes; IGST is to ensure a smooth flow of tax credit between states; Dual taxes (CGST & SGCT) are there to ensure that both Centre and states get their deserving revenue.
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