GST is a type of tax that shifts the place of goods production to the place of consumption. Therefore, the importers while the exporter or producer is relieved of the tax burden.
Under the existing tax regulation, there could be multiple tax levies such as central excise for manufacturing, service tax for sale of service and VAT for goods sold. Under GST, there would be a harmonizing of all tax payment to a single taxable event.
Inter-State vs. Intra-State
To have a good grasp of the term CGST, SGST, and IGST, you need to first understand inter-state vs. intrastate goods and service supply under GST. For every taxable transaction, it is imperative to know the difference between both concepts so you will know which would be applicable in CGST, SGST or IGST.
To determine if supply is inter-state or intra-state, the location of the supplier and the place of supply must first be determined.
Inter-state supply refers to the supplier’s location of goods or service which is usually in different states. Also, import of goods or services to special economic zone in India is referred to as inter-state supply of goods and services.
For the intra-state supply of goods or services, the supplier resides in the same state at which the supply is made. The intra-state supply does not involve goods supplied to special economic zone as well as import and export.
How is GST Levied?
Both inter-state and intra-state supply attracts GST levy by the Central and State Government. Both State and Central Government have the vested power to collect tax on the supply of goods and services. For inter-state supply, only the Central Government has the power to enforce tax collection while the final profits after transaction would be transmitted to the State and the Union just like that of the intra-state transaction.
Meaning of CGST
Central GST or CGST is levied on intra-state goods and services supply. Essentially it means that for intra-state supplies both the Central and State government collect levies with a proportional revenue sharing formula between them. The power to levy CGST and SGST is provided in Section 8 of the GST Act, which states that:
The following taxes shall apply to all intra-state supplies at specified rates applicable to the said Act on the council recommendation but must not exceed 14%, each. Such SGST and CGST is to be remitted by a taxable person.
Highlights of CGST
- CGST applies to goods and services.
- The Central Government levies CGST through a separate act on all transactions made for consideration.
- Earnings are shared between the Central and State Government.
Meaning of SGST
State GST or SGST is a tax levied on goods and services supplied within the state and collected by the respective State Government. SGST liability can be collected against SGST or IGST tax credit only.
Highlights of SGST
- The State Government levies SGST through a separate act on all transactions made for the supply of goods and services.
- SGST would be remitted to the respective State Government accounts.
Meaning of IGST
IGST otherwise called Integrated GST is the levied tax on goods and services supplied during inter-state trade across India. List of items categorized under IGST includes goods and/or services imported and export to and from India.
IGST will take the place of the present CST levied on the inter-state transactions. Thus, IGST applies to all inter-state transactions, and goods imported and exported.
Highlights of IGST
- Central Government would collect IGST levies instead of CGST or SGST.
- Inter-state supply of goods and services are levied.
- Includes goods and services imported.
- Zero-rated exports.
- The Central and State Government would share the IGST.
Calculating CGST, SGST, and IGST
The example below will serve as a guide to calculating CGST and SGST for intra-state supply:
For example, a Mumbai, Maharashtra trader supplies almonds worth Rs.1 lakh to another retail shop in Pune, Maharashtra, and the CGST and SGST is 6%. This implies that the almond trader would set a CGST and SGST of Rs.6000 on the value of the product. After which the trader would pay the CGST into a Central Government account, and the SGST will be paid into the State Government’s account.
The example below will serve as a guide to calculating IGST for inter-state supply:
For example, a Mumbai, Maharashtra trader supplies almonds worth Rs.1 lakh to another retail shop in Chennai, Tamil Nadu with the IGST rate set at 12%. In this scenario, the almond trader would charge an IGST of Rs.12000 on the product value. The trader would then need to remit the IGST into a Central Government account. Company Vakil is a leading legal registration platform that provides services from GST registration to helping you start and run your company.