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The GST (Goods and Services Tax) regime was introduced on July 1, 2017. It is one of the most significant and revolutionary indirect tax reforms in India post-independence. GST subsumed a number of indirect taxes levied by the Central and State Governments. Taxes such as Central Excise duty, Service Tax, VAT, Purchase Tax, Central Sales Tax, Entry Tax, Local Body Taxes, Luxury Tax, etc.are now non-existent.
Previously, a number of indirect taxes were prevalent in India and separate compliances under each of these laws were required to be made. Introduction of GST as one nation one tax has eased out the complete process. It has substantially saved time and effort involved in procedural aspects and resultantly has reduced the complexities involved.
Under the GST law taxes can be further classified into these four types:
1) Central goods and services tax (CGST)
2) State goods and services tax (SGST)
3) Union territory goods and services tax ( UTGST)
4) Integrated goods and services tax (IGST)
Now, let us understand each one in detail. Starting with our discussion first with CGST.
Central Goods and Services Tax or CGST is the indirect tax levied by the Central Government. It is levied on the transaction of goods and services which are undertaken within the state i.e. intrastate. The tax collected under the head “CGST” is payable to the central government treasury.
The CGST is charged to compensate the central government for previously existed indirect taxes such as
The CGST is charged along with SGST or UTGST and at the same rates. This is done as per the Dual GST model followed in India, where both central and state governments have their separate taxation legislatures.
State Goods and Services Tax or SGST represents the tax imposed by the State Government. SGST is levied on intrastate sales of goods and services, i.e., sales made within a state.
SGST is charged along with and at equal rates of CGST on a good or service. All the states of India charge this tax but has also been adopted by two union territories of
because both of these union territories have their legislative assembly and council.
The tax revenue under SGST goes to the State Government treasury or the eligible Union Territory where the consumption of goods or services has taken place.
Union Territory Goods and Services Tax or UTGST is similar to SGST. The only difference is that the tax revenue goes to the treasury for the respective administration of the union territory where the goods or services have finally been consumed. There is a key difference between union territory and states. The Union Territory directly comes under the supervision of the Central Government and does not have its own elected government as in the case of States.
UGST is also charged at the same rates of CGST. But, amongst UTGST or SGST, only one at a time shall be levied together with CGST in each case.
Currently, there are 8 union territories in India:But out of these Delhi and Puducherry levy SGST and not UTGST because they have their own elected members and Chief Minister. Hence, they function as partial – states. As the SGST Act cannot be applied to a union territory that does not have its legislature. The UTGST Act was introduced by the GST Council.
IGST is levied on all interstate supplies of goods and services by the Central Government, unlike, CGST, SGST, & UTGST, which are levied upon the supply of goods or services within a state.
IGST has provided a standardization to taxation on the supply of goods and services made outside the state. This applies both to a supply made outside the state and outside the country.
The rate of IGST would always be approximately equal to the CGST rate plus the SGST rate.
Now, let’s take a situation to understand all the taxes under GST in a nimble way;
Suppose the sale of goods is worth Rs 10 lakhs. It attracts GST @ 18%. Consider the computation GST payable under relevant heads in the following scenarios
| Situation | Analysis | Taxes Applicable |
| Sales within the same state | Intra-state Supply | CGST @ 9% +SGST @ 9% |
| Sales within the same union territory | Intra-state Supply | CGST @ 9% +UTGST @ 9% |
| Supply to another state | Inter-state Supply | IGST @ 18% |
Let us assume that
Goods and Services Tax (GST) is a destination based tax. This means the revenue goes to the treasury of the state government in which supply has finally been consumed. We will understand the concept and trace how GST credits are set off amongst state government by taking the same example dealt above.
| Particulars | Amount collected as Tax By State and Central | ||||||
|---|---|---|---|---|---|---|---|
| Step | Transaction between | Sale price | Gujarat | Uttar Pradesh | Central | ||
| 1 | Shubham to Rahul | 20,000 | 20000*9=1800 | —— | 20000*9 | 1800 | |
| 2 | Rahul To Mahesh | 22000 | 22000*IGST@18% | 3960 | |||
| (-) CGST ITC | 1800 | ||||||
| (-) SGST ITC | 1800 | ||||||
| Net Payable | 360 | ||||||
| 3 | Mahesh to XYZ | 29000 | 29000*9%= | 2610 | 29000*9%= 2610 | ||
| (-) Balance IGST credit = | 1350 | (-) IGST ITC= 2610 | |||||
| Net Payable | 1260 | Net | 0 | ||||
| 4 | Total Receipt | 1800 | 1260 | 2160 | |||
| 5 | Adjustment | adjust with Centre (-1800) | Coming from centre(+1350) | (+450) | |||
| Final Tax Revenue to respective government | 2610 | 2610 | |||||
We have by far understood about all the various types of GST. Now, it's time to take an insight into how the input tax credit is allowed under all these laws.
GST has been said to resolve one of the biggest ills of the old indirect taxation system i.e. non-availement of ITC at all stages. Since GST is a uniform and one tax its credit can be taken at all stages and the set off amongst various prevalent kinds of GST can be better understood as under
| Type of GST Payment | Set off in preferential order from |
|---|---|
| IGST | 1. IGST 2. CGST 3. SGST |
| CGST | 1. CGST 2. IGST |
| SGST / UTGST | 1. SGST / UTGST 2. IGST |
From 1st Feb 2019 the set-off preferential order for output tax liabilities under Goods and Services Tax has been changed via the insertion of section 49A in CGST Act 2017. The new set-off rules are
| Type of GST Payment | Set off in preferential order from |
|---|---|
| IGST | 1. IGST 2. CGST & SGST |
| CGST | 1. IGST 2. CGST |
| SGST / UTGST | 1. IGST 2. SGST / UTGST |
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Yes, IGST credit will be used first for making payment of SGST, after that, SGST credit will be used for the remaining tax liability of SGST.
As prescribed by GST Law, IGST Input credit must be utilized first to set off IGST tax liability. The remaining ITC can set off CGST or SGST in any order.
GST is applicable on all imports into India and Interstate supply in the form of a levy of IGST. IGST is levied on the value of imported goods + any customs duty chargeable. Hence, IGST must be calculated after adding the applicable customs duty to the value of imported goods.
No, CGST credit can be used for CGST itself and can also be used for IGST. But CGST credit can not be used to set off for SGST liability.
No, SGST input credit can be utilized first to set off SGST liability, and the remaining ITC can be used for IGST, but SGST credit can not be used to set off for CGST liability.
IGST is a part of Goods and Service Tax (GST). IGST means Integrated Goods and Service Tax, one of the three categories under Goods and Service Tax (CGST, IGST, and SGST). It is charged on interstate supply of goods or services, which means on transactions with other states or countries. For example, if goods are moved from Tamil Nadu to Kerala, IGST is levied on such goods.
