Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services. The Goods and Services Act was passed by the Government of India under their “One Nation, One Tax” reform on 29th March 2017. This reform intended to bring various indirect taxes such as excise duty, VAT, octroi, service tax, etc. under one tax system which saves people from paying multiple indirect taxes.
GST is a destination-based tax—meaning that it is levied in the State where the goods and services are consumed rather than manufactured. It’s a value-added tax and is charged at every point of sale. The arrival of GST was important to replace the origin-based tax system, avoid double taxation, and bring about a uniform and universally-accepted tax system.
Types of GST
After the GST came into effect on 1st July 2017, the multiple indirect taxes were subsumed by one indirect tax which is segregated into four types. Let’s have a detailed look at them:
Central Goods and Services Tax (CGST)
CGST is the tax levied by the Central Government and is applicable on the supply of goods and services within the same state. When there is an intrastate (between the same states) supply of goods and services, both CGST and SGST are levied. The revenue generated through CGST is collected by the Central Government and the revenue generated through SGST is collected by the respective State Government.
For example, if a shopkeeper from Gujarat sells shoes worth Rs.3,000 to a customer in Gujarat, then both CGST and SGST will be applicable on this sale. If the GST levied on the shoes is 15%, it will be divided between the Center and the State equally, i.e, 7.5% which equates to Rs. 225. Thus, Rs. 225 will go to the Central Government and the same amount will go to the Gujarat State Government.
State Goods and Services Tax or SGST
Similar to CGST, the SGST is applicable on the intrastate transaction and is levied by the State Government of the state where the transaction is made.
Taking the earlier example, when a shopkeeper from Gujarat sells shoes to a customer of Gujarat worth Rs.3,000, then the GST applicable on the transactions will be divided between the Centre and the State. As the GST levied is 15%, the Centre will receive 7.5% (Rs. 225) of revenue in the form of CGST, and the same amount will go to the Gujarat State Government in the form of SGST.
Integrated Goods and Services Tax or IGST
The IGST is applicable on the inter-state (between two states) supply of goods and services as well as on the export and import transactions. It is collected by the Central Government and the tax is shared among the respective states after its collection.
For example, if a shopkeeper from Uttar Pradesh sells shoes worth Rs. 3,000 to a customer in Madhya Pradesh, then the tax levied would be IGST as the transaction is between two states. If the GST levied is 15%, then the trader will charge Rs. 450 as IGST which will be collected by the Central Government. The Center will then share the SGST with the state where the product is consumed; in this case, Madhya Pradesh.
Union Territory Goods and Services Tax or UTGST
The UTGST is applicable on the intrastate supply of goods and services within the Union Territories of India and is collected by the Union Territory Government.
For example, if the GST levied on the shoes sold by a shopkeeper of Chandigarh to a customer of Chandigarh is 15%, then the amount (Rs. 450) would be divided equally between Center and the Union Territory.