The Indian government passed the Goods and Services Tax (GST) Act on 29th March 2018. Consequently, GST came into effect from 1st July 2017, replacing multiple pre-existing indirect taxes such as excise duty, service tax, and VAT. But with the arrival of a unified indirect taxation system, issues of tax division between the central government and state governments also became apparent. To simplify this revenue division, various types of GSTs have been introduced. This article sheds light on the different types of GST and how they are collected.
What is GST?
GST is defined as a value-added tax imposed on the supply of goods and services which are intended for domestic consumption in India. GST is an all-encompassing and uniform indirect tax law that’s application for the entire country. The tax value is added to the final price of a good or service. Therefore, a customer who buys the product pays the price that has GST included. The seller acts as the intermediary and forwards the GST collected to the government. Businesses and individual taxpayers can utilise free GST calculator tools available online to compute GST payments. Users simply need to input the cost and applicable GST rate into the GST calculator to estimate the GST amount.
Objectives of GST
The introduction of the unified GST regime in 2017 has helped achieve the following objectives:
- Simplification of Taxation: By replacing multiple indirect taxes with a single unified structure, GST aimed to streamline the indirect tax system in India, effectively reducing compliance complexities for businesses and individuals.
- Eliminating the cascading effect: One of the primary objectives of GST was to remove the cascading effect of taxes. The tax on tax effect of the previous system resulted in a higher tax burden for the end-customer.
- Boost revenue: GST has helped improve revenue for the government exchequer by broadening the tax base and reducing the possibility of tax evasion.
- Transparency and compliance: The GST system in India has ensured greater transparency in indirect tax collection while simultaneously simplifying compliance for businesses.
Types of GST in India
The GST application varies depending on the type of transaction in question. Which type of GST is applicable depends on the following:
Inter-state transactions
This type of GST is applicable when the transaction happens between 2 states. Here, the central government collects IGST from the tax-payer and allocates the proportionate share to the state government. For instance, if a iron ore supplier from Jharkhand sells it to a customer from Orissa, the GST is divided between the central government and the state government of Orissa (state of consumption).
Intra-state transactions
This type of GST is applicable on transactions carried out within the same state. Here, the GST collected by the central government is divided between the centre and state as CGST and SGST. For instance, if the iron ore trader from Jharkhand sells the ore to a customer within the same state, the GST is divided between the central government and the Jharkhand government.
Therefore, which type of GST is applicable on a transaction depends on whether the transaction is intra-state and inter-state. Accordingly, there are 4 types of GST in India:
- CGST
- SGST
- IGST
- UGST
Understanding the Components of GST
Central Goods and Services Tax (CGST)
CGST is a type of GST levied by the central government on the intrastate transactions of goods and services. In other words, CGST is collected on any transaction that happens within the same state. CGST is levied alongside SGST/UGST and the revenue collected is shared equally between the centre and the state. Let’s understand this with an example. For instance, if a businessman from Kerala sells goods worth Rs. 10,000 to a customer located in Kerala, then the GST applicable on the transaction will be equal parts CGST and SGST. So, if 18% GST is applicable, then 9% will be CGST and the remaining 9% will be SGST. In this case, the seller will charge a total GST of Rs. 1,800 and remit Rs. 900 as CGST to the central government.
State Goods and Services Tax (SGST)
Like CGST, SGST is levied by the state government on any intrastate transaction of goods and services. The revenue collected from the imposition of SGST can be solely claimed by the state government. The introduction of GST subsumed various state-level indirect taxes like purchase tax, VAT, Octroi, and others to effectively simplify the taxation structure. As per the previous example, if the trader from Kerala sells goods worth Rs. 10,000 to a customer in the same state, the 18% GST will be equally divided between the central and state government. Therefore, Rs. 900 will be remitted to the state government as SGST.
Integrated Goods and Services Tax (IGST)
IGST is applicable on interstate transactions of goods and services as well as imports and exports. IGST is collected by the central government. Let’s take an example to understand what IGST is and how it is collected. Suppose, a trader from Kerala sells a set of goods for Rs. 10,000 to a consumer in West Bengal. In this case, an IGST will be applicable since the transaction is happening between two states. If there is an 18% GST charge, the trader will collect a total of Rs. 11,800 (including GST). In this case, the IGST of Rs. 1,800 will be remitted to the central government entirely.
Union Territory Goods and Services Tax (UGST)
UGST is essentially the counterpart of state GST for the Union Territories of India. It is the GST levied on the supply of goods and services in the Union Territories (UT) of India. UGST replaces SGST in the Union Territories of Andaman and Nicobar Islands, Daman, Diu, Chandigarh, Nagar Haveli, Lakshadweep, and Dadra. Like SGST, UGST is levied alongside CGST on intrastate transactions of goods and services.
Differences between the various types of GST
The following table sums up the differences between the various types of GSTs in India:
| Type of GST | Authority collection GST | Priority of tax credit use | Eligible transactions | Benefiting authority |
| CGST | Central government | CGST, IGST | Intrastate transactions of goods and services. | Central government |
| SGST | State government | SGST, IGST | Intrastate transactions of goods and services. | State government |
| IGST | Central government | IGST, CGST, SGST | Interstate transactions of goods and services. | Central government |
| UGST | Government of the Union Territory | UGST, IGST | Intrastate transactions of goods and services within a Union Territory. | Government of the Union territory |
Conclusion
The introduction of GST has helped eliminate the cascading effect of indirect taxes in India, ensuring a streamlined approach to tax collection and reducing the overall tax burden on consumers. In a drive to make taxation more transparent and efficient, four types of GST structures have been introduced. Understanding the types of GST classifications, namely, CGST, SGST, IGST, and UGST essentially helps a taxpayer understand where their tax money is going. In simple words, it helps determine which government is ultimately collecting the GST.
Frequently asked questions
What are the various types of GST currently applicable?
The 4 types of GST currently applicable are CGST, SGST, UGST, and IGST.
Who collects the tax amount for various types of GST applications?
When CGST is applied, the central government collects the GST amount, while when SGST is applied, the GST sum gets remitted to the state government. When IGST is applied on an inter-state transaction, the central government collects the GST amount. UGST is collected by the government of the Union Territory.
How does the nature of the transaction impact the GST application?
GST application is based on whether the transaction is an interstate or intrastate one. If the transaction occurs within the same state, it qualifies for CGST and SGST/UGST. However, if the transaction is between two states, IGST is applicable.