Types of GST in India- CGST, SGST & IGST: Differences, Exemptions

What is GST?

GST stands for Goods and Services Tax. It is an indirect tax that is applied across India on the supply of goods and services. Before GST came into existence, businesses had to deal with multiple taxes such as excise duty, VAT, and service tax. GST replaced all of these and brought everything under one unified system.

The GST Law was passed in Parliament and officially came into effect on July 1, 2017. Since then, it has worked as a single indirect tax applicable across the entire country, making taxation simpler for both businesses and consumers.

Let's understand this with a simple example:

When a manufacturer buys raw materials like oats flour and sugar to produce oats biscuits, taxes were earlier applied at every single stage, from the manufacturer to the wholesaler to the retailer. This led to what is called "tax on tax," which increased the final price for consumers. GST solved this problem by applying tax only on the value added at each step, making the entire process much fairer and more transparent.

Now, let's look at the different types of GST in India, CGST, SGST, IGST, and UTGST - and understand how each one works.

Types of GST in India

India follows a dual GST structure, which means both the Central Government and the State Government have the right to collect taxes. Depending on whether a transaction happens within a state or between two different states, a different type of GST applies.

Here is a breakdown of all the types:

What is CGST (Central Goods and Services Tax)?

CGST stands for Central Goods and Services Tax. It is governed by the CGST Act and is collected by the Central Government on transactions that take place within the same state, also called intra-state transactions.

Whenever you buy or sell goods and services within your own state, CGST is charged alongside SGST. The revenue collected through CGST goes directly to the Central Government.

Example: If a business in Delhi sells goods to a buyer also in Delhi, both CGST and SGST will be applied on that intrastate supply of goods and services.

What is SGST (State Goods and Services Tax)?

SGST stands for State Goods and Services Tax. It is collected by the State Government and also applies to intra-state transactions, meaning transactions that happen within the boundaries of the same state.

SGST is charged at the same rate as CGST, and the revenue collected goes to the state where the transaction takes place. Every state in India has its own SGST, and the rules are governed by the respective state's GST legislation.

Example: On the same Delhi-to-Delhi transaction mentioned above, the state of Delhi will collect SGST, while the Centre collects CGST, both at equal rates.

What is IGST (Integrated Goods and Services Tax)?

IGST stands for Integrated Goods and Services Tax. It is governed by the IGST Act and is collected by the Central Government on inter-state transactions, that is, when goods or services move from one state to another, or when imports take place.

In simple terms, whenever a business in one state sells to a buyer in a different state, IGST applies instead of CGST and SGST. The revenue collected through IGST is then shared between the Central and State Governments based on the destination of the goods.

IGST also applies to interstate supplies of goods and services involving special regions such as Andaman and Nicobar Islands and Chandigarh.

Example: If a business in Mumbai sells goods to a buyer in Chennai, IGST will be charged on that transaction since it involves two different states.

What is UTGST (Union Territory Goods and Services Tax)?

UTGST stands for Union Territory Goods and Services Tax. It is similar to SGST but applies specifically to union territories in India that do not have their own legislature, such as Dadra & Nagar Haveli, Daman & Diu, Lakshadweep, and others.

The union territory government collects UTGST on intra-union territory transactions, and it works alongside CGST, just the way SGST works alongside CGST in regular states. The services tax, UTGST, and CGST together form the complete tax on intra-UT supplies.

Key Differences Between CGST, SGST, and IGST in India?

The differences between CGST, SGST, and IGST in India are as follows:

The CGST, SGST, and IGST have shared a balanced tax revenue distribution and created a clear and effective tax system.

Who is Liable to Pay GST?

The following individuals are liable to pay GST:

1. The individuals who are registered under GST and making taxable supplies are liable to pay GST.

2. E-commerce business operators are liable to pay GST.

3. E-commerce businesses that are registered under GST are required to deduct tax collected at source.

4. Persons registered under GST are required to make payment of tax under the reverse charge mechanism.

GST Exemptions For Goods & Services

Exempted Goods for GST

GST exemption means that no GST will be charged on the supply of certain goods. This is done to keep essential commodities affordable for the general public. The following goods are exempt from GST (this is not an exhaustive list):

1. Food items- Fruits and vegetables, cereals, fresh fish and meat (unprocessed), unroasted coffee beans, edible tubers and roots, jaggery, tender coconut, seeds for planting, and similar agricultural produce.
2. Raw Materials- Raw silk, silk waste, raw jute fibre, charcoal, firewood, and other basic raw materials.
3. Tools- Agricultural tools, hand tools, and handmade instruments used for farming and small-scale work.
4. Energy and Fuels- Fossil fuels and certain forms of energy are also covered under exemptions.

Exempted Service for GST

The list of services that are exempt from GST payment is as follows, but is not limited to the following:

1. Transportation Services- Movement of goods by rail, road, or cargo; toll tax payments; and transportation of goods where the total freight cost is under ₹1,500.
2. Agricultural Services- Harvesting, cultivating, renting of agricultural machinery, services by commission agents, and services provided by Agriculture Marketing Committee boards.
3. Medical Services- Services offered by ambulances, charitable health organisations, and veterinary doctors. However, cosmetic procedures such as hair transplants are not included in this exemption.
4. Government Services- Services provided by the Reserve Bank of India (RBI) and services rendered by foreign diplomats operating in India.

GST Exemption for Businesses

Businesses and individuals who are supplying goods can claim a GST exemption if their aggregate turnover is less than 40 lakhs in a financial year.

For individuals and businesses that are suppliers of services, the GST exemption claiming limit is 20 lakhs.

Impact of CGST, SGST, and IGST on Businesses in India

There is a significant impact of CGST (Central Goods and Services Tax), SGST (State Goods and Services Tax), and IGST (Integrated Goods and Services Tax) on businesses in India. Here are some key points:

1. Tax structure: The introduction of GST has replaced multiple indirect taxes; simply the tax structure compliance and making it easier for businesses to understand their tax obligations.
2. One Nation, One Tax: GST has replaced multiple taxes and is levied with us only one tax without needing to navigate different tax structures.
3. Encouragement of Compliance Related to Input Tax Credit: The Input Tax Credit mechanism encourages businesses to maintain proper documentation and comply with the tax regulations.
4. Technology Adoption: Many businesses need to invest in technology to manage GST compliance effectively.
5. Revenue for Government: GST has broadened the tax base, increasing revenue for both central and state governments, which may lead to improved infrastructure and public relations.
6. Boost E-commerce: Simplified tax structures support the growth of e-commerce by easing the procedure for online businesses.

Conclusion

Overall, CGST, SGST, and IGST in India have reshaped the tax landscape and brought more challenges and opportunities for businesses. GST Registration is a crucial step for businesses to ensure compliance with these tax regulations. CGST, SGST, and IGST simplify the tax structure, promote transparency, and enhance compliance for businesses.

GST Registration is the first and most important step for any business to ensure full compliance. JustStart has helped hundreds of entrepreneurs register under GST and stay on top of their compliance requirements on time. Contact our team today and let us handle the complexity while you focus on growing your business.