Indian constitution had always been imposing tax from the early days of the year 2000. In the initial days, the citizens of India had been paying taxes in multiple variants (like VAT, Sales Tax, Entertainment tax, etc.). However, the government decided to amend the Indian constitution (101st Amendment) and brought in the concept of Goods and Services Tax (GST) which was the biggest reform in the country’s tax structure in decades.
The GST Act subsumed all other variants of taxes levied on the citizens by the Central and the State governments, as a part of the central goods and services act 2017 and also eliminated the concept of double taxation. By the time you finish reading this blog post, you will have an understanding of:
India adopted a dual GST model under which both the Center and the State levied taxes on taxable supplies. Apart from both the Center and State, there are two other forms of taxes that are levied on the common individual.
In this segment, we cover all the 4 types of GST to help you understand the subtle differences between them:
Central Goods and Services Tax [CGST] is one of the four components of GST in India. It’s applied to intra-state supplies with the exclusion of alcoholic liquor for human consumption. Similar to other taxes, CGST gets applied to the transactional value (price payable for a given supply of goods or services) as per the central goods and services act 2017.
The rollout of CGST replaced multiple taxes earlier levied by the center like service tax, central excise duty, additional customs duty, etc. It’s collected by the Central government and the input tax credit of the CGST can be used against the CGST or IGST, but not under SGST.
The State Goods and Services Tax [SGST] is applicable on intra-state [within the same state] transactions. In the case of the intra-state supply of goods and/or services, both State GST and the Central GST are levied. Similar to CGST, even SGST is governed by the State Goods and Services Act, 2017, and the entire revenue earned through SGST is solely claimed by the respective state government.
For instance, if you’re a trader from Bengaluru and you sell out goods to a customer in the same city, i.e., Bengaluru worth INR 5000, then the GST applicable on the transaction will be a mix of both the CGST and the SGST.
If the GST charged is 18%, it gets equally divided between SGST and CGST at a 9% rate. So, you’ll charge a total amount of INR 5,900 and out of the revenue earned, you’ll give INR 450 to the Bengaluru state government in the form of SGST.
Integrated Goods and Services Tax or integrated GST applies to all interstate (between two states) transactions and the import and exports from India. Governed by the IGST Act, the entire tax revenue is collected by the Central government. Once collected, the Central government divides the taxes among the respective states.
NOTE: As per the IGST Act, all exports are zero-rated.
For example, if you’re a trader from Kolkata and are selling out goods worth INR 5,000 to a customer based out of Karnataka. then IGST on services will be applied as it’s an interstate transaction. If the rate of GST is 18%, you’ll charge INR 5,900 for the goods and the entire IGST of INR 900 collected will go to the Central government.
Union Territory Goods and Services Tax (UTGST) is covered under the UTGST Act, 2017. The UTGST Act, 2017 applies to all Union Territories that are mentioned in the Schedule I of the Indian Constitution as per which India constitutes 29 States and 7 Union Territories.
The UTGST Act is passed by the Parliament and is managed by an Administrator specific for the Union Territory. The President administers each UT via the Administrator and he’s one with adequate powers to appoint other officials to implement UTGST in the true sense.
If we look at the utgst meaning, we understand that Union Territory GST is levied on intra-state supply of goods and/or services with tax charged under the CGST Act, 2017. Similar to other tax formats, these do not include alcoholic liquor for human consumption. Additionally, the tax is charged at a rate not exceeding 20%, which gets notified by the Central government on recommendations of the GST Council.
Although GST came into inception under the slogan of – One Nation, One Tax, the overall taxation process was categorized into different components namely the:
This categorization was done by understanding whether the transaction is Intra-state or an Inter-state. So, the question worth asking for is: what was the need of splitting GST into these components? Let’s understand the same in this segment.
Before we dive into the splitting of GST, let us first understand the basic meaning of the terms – Inter-state and Intra-state supply.
Intra-state supply transactions: Intra-state supply refers to the scenario when the location of the supplier and the location of the buyer (place of the supply) lie in the same state. As per GST rules, the seller collects both the State GST and Central GST from the recipient and deposits the collected revenue to both the central and the state government respectively.
Inter-state supply transaction: The inter-state supply transaction occurs when the location of the supplier and the location of the buyer (place of the supply) are in different States/Union Territories, or a State and a Union Territory. In case, the import or export of the goods/services is made via SEZ (special economic zone) unit, the transaction falls under the Inter-state transaction, and the seller collects the IGST.
Since India is a federal nation, both the Central government and the State government has the power and authority to levy and collect taxes. Both the governments have their separate responsibilities (defined in the Indian constitution) and they need the revenue generated from the tax to perform their duties.
So, to ensure there’s smooth cooperation between the two governments w.r.t revenue generation, the GST was categorized into three components.
GST was designed as a uniform tax for the entire nation and its implementation replaced multiple indirect taxes levied by both the Center and the State governments.
Here’s the comprehensive list of taxes that got replaced:
With the access revoked for above-listed taxes, GST is making sure that the slogan “One Nation, One Tax” stands tall throughout the nation.
As per the GST laws, the Indian government has categorized all goods and services into the following 5 slab rates:
No Tax – Under this slab rate, no tax is levied on goods like sanitary napkins, Rakhi (without gold, silver, etc. used), deities made of marble, or stone. Fruits, milk, vegetables, eggs, natural honey, and more are additional products that are included in the list. Even hotels who have a tariff below INR 1000, are exempted from taxes under GST.
5% – It includes goods like skimmed milk, coffee, tea, spices, kerosene, ayurvedic medicines, sliced dry mangoes, cashew nuts, handmade carpets, and other handmade textile floor coverings. It further includes small restaurants with transport services (railways/airways) and restaurants that serve liquor or takeaway food fall under this category.
12% – It includes processed foods like cheese, ghee, sausages, ayurvedic medicines, fruit juices, cell phones, and handbags like pouches, and purses. Movie tickets under INR 100 and business class air tickets too fall in this category.
18% – Few items that belong to this category include names of flavored sugar, cornflakes, pasta, detergents, washing and cleaning preparations, light fittings, chocolates, few electronic items like refrigerators, water heaters, washing machines, and televisions (up to 68cm). Restaurants within a hotel whose tariff is INR 7500 and above, movie tickets above INR 100, IT & telecom services, and financial services are all a part of this tax slab.
28% – This slab includes sunscreens, weighing machines, cement, vacuum cleaners, automobiles, etc. Five-star hotels whose bill is above INR 7,500, movie tickets, racing, and others come under this category.
Goods and Services Tax (GST) is a form of an indirect tax that came into effect on July 1, 2017. It’s a destination-based and multi-stage tax that applies to the supply of goods and services. It’s collected from the point of consumption rather than the point of origin and at every stage of the product supply chain.
The entire GST rates are managed by the GST Council. The council involves 33 members, including the state Finance Ministers and under the supervision of the Union Finance Minister of India.
With over 3 years of inception, GST has now become a reality in India. Most businesses and taxpayers now understand its terminologies and implement it as per their understanding. However, if you’re new to GST, our quick terminology listed here will help you understand different nuances of GST without additional efforts:
Additional Cess: It’s the extra charge that gets applied on certain goods in the initial five years of GST rollout. It’s levied to compensate for any losses incurred by the State government due to the reduction of tax rated under the GST.
Address of Delivery: It represents the address of the intended recipient of goods and/or services as indicated on the tax invoice generated by the taxpayer.
Address on Record: It shows the address of the recipient as noted by the supplier. It may or may not be the same as the delivery address.
ARN (Application Reference Number): It’s a 15-digit unique code that’s generated after you perform a successful transaction or gets registered on the GST portal
Application Service Providers (ASPs): These are agencies that help you with different GST processes like filing GST returns, obtain new GST registrations, and address complexities faced by taxpayers w.r.t GST.
Credit Note: It’s a document that’s issued by the taxable person concerning the tax invoice exceeding the taxable value and/or tax payable in respect of the supply, or where the recipient returns the goods supplied, or where the services supplied are found to be deficient.
Consideration: It relates to the supply of goods and services involving any payment made or to be made, either in form of money or kind OR monetary value of any act or forbearance, whether or not voluntary.
Digital Signature Certificate (DSC): It’s a secure, digital key that holds the identity of the holder, issued by the Certifying Authority. It’s the digital equivalent of a handwritten signature.
NOTE: Feel free to check out other additional terms within the GST glossary.
If you’re a new taxpayer, understanding different GST forms and different nuances of GST return filing can be no less than a nightmare for you. In general, there are different types of GST returns according to the number of GST forms.
So, if you’re looking out for easy ways to file your GST return this year, try out Giddh. It’s a dedicated cloud-based tool that can help you manage your business finances and generate invoices easily from any internet-connected device with a browser.With a simple interface, invoice creation, expense management, activity logs, and bank-level security, Giddh makes it easier for you to keep your financial reports secure and file GST returns in just a few taps.