On March 29th, 2017, the Indian Parliament passed the Goods and Service Tax Act, which went into force on July 1st, 2017. It was heralded as a major tax reform for the country, replacing a variety of indirect taxes such as excise duty, VAT, service tax, and so on. The goal of this transformation was to simplify India’s taxes system and restructure its $2.4 trillion economies. In this article, we will know about Types Of GST.
What is GST?
The Goods and Services Tax (GST) is a value-added tax paid on domestic goods and services. As a result, GST is a single, all-encompassing indirect tax law for the entire country.
This tax is included in a product’s ultimate price. When a buyer purchases goods, the price includes GST. The GST component is subsequently forwarded to the government by the business or seller.
This tax is levied by India’s central government. In the case of intrastate transactions, the CGST and SGST are used to split the tax between the federal and state governments.
Types of GST
The GST system takes into account the kind of transaction when calculating the tax amount –
- Inter-State transactions
It is an exchange of information between two states. For example, a supplier in Jharkhand supplies iron ore to a customer in West Bengal. The GST collected is split between the federal government and the state of West Bengal (State of consumption).
- Intra-State transactions
An intra-state transaction occurs when a transaction takes place within a single state. A company in Jharkhand, for example, sells 1 tonne of iron ore to a customer within the state. The GST is subsequently diverted to the federal government and the state of Jharkhand.
There are essentially three categories of GST based on the nature of transactions –
- SGST (State Goods and Services Tax)
- CGST (Central Goods and Services Tax)
- IGST (Integrated Goods and Services Tax)
The SGST is a tax levied by a state government on intra-state goods and services transactions. The revenue is earned by the state government in the area where this transaction occurs. The SGST replaces previous taxes such as the purchase tax, luxury tax, VAT, Octroi, and others.
A Union Territory Goods and Services Tax, or UGST, substitutes the SGST in union territories such as Chandigarh, Puducherry, and the Andaman and Nicobar Islands.
CGST is a tax levied by the central government on intra-state goods and services transactions. It is taxed in addition to SGST or UGST, and the collected funds are split evenly between the federal government and the states.
An IGST is imposed on goods and services transactions that take place between states. It is also applicable to imports and exports. The state and the federal governments split the revenues earned by this tax.
Current Application of the Different Types of GST
The table below offers a case study that explains how these types of GST are applied:
|A Maharashtra seller sold goods worth Rs. 10,000 to a Maharashtra consumer. The applicable GST will be split between the SGST and the CGST.||A Maharashtra seller sold goods worth Rs. 10,000 to a Maharashtra consumer. The applicable GST will be a combination of CGST and SGST.||A Maharashtra seller supplied products worth Rs. 10,000 to a Karnataka client. IGST will be the applicable GST.|
|If the GST rate is 18 percent, the tax will be split evenly between SGST and CGST, with each receiving 9%. In this situation, the total sum charged by the trader is Rs. 11,800.||If the GST rate is 18 percent, the tax will be split into 9 percent SGST and 9 percent CGST. The whole sum is Rs. 11,800.||If the GST rate is 18%, the entire sum must be paid as IGST. The dealer has been charged a total of Rs. 11,800.|
|The GST amount is Rs. 1800.||GST is Rs. 1800 per person.||The GST amount is Rs. 1800.|
|The SGST is Rs. 900, and the CGST is also Rs. 900.||The CGST is Rs. 900, and the SGST is also Rs. 900.||It costs Rs. 1800 to pay the IGST.|
|The Maharashtra government receives Rs. 900 in SGST. As a result of the CGST, the central government earns Rs. 900.||As a result of the CGST, the central government earns Rs. 900.||The IGST is worth Rs. 1800 to the central government.|
Difference Between the Types of GST
The distinctions between the various forms of GST taxes are summarised in the table below:
|Types of GST||Collecting authority||Priority of Tax Credit use||Applicable transactions||Benefiting authority|
|SGST||State Government||SGST, IGST||Intra-state transactions/transactions within a single state||State Government|
|UGST||Union Territory (UT) Government||UTGST, IGST||Within a Union Territory||Union Territory (UT) Government|
|CGST||Central Government||CGST, IGST||Intra-state transactions/transactions within a single state||Central Government|
|IGST||Central Government||IGST, CGST, SGST||Inter-state transactions/transactions between two states or a state and a Union Territory (UT)||State Government and Central Government|
Who is Liable to Pay GST?
Individuals who have registered for GST and are making taxable supplies are required to pay GST.
- GST-registered individuals must pay through the reverse charge system.
- GST-registered individuals who are obligated to deduct tax at source (TDS).
- E-commerce businesses that are GST-registered.
- E-commerce businesses that are GST-registered are obligated to collect tax at the point of sale (TCS).
- Individuals who provide goods or services on behalf of a manufacturer or provider (agents).
Goods Exempted from GST Payment
The GST, like all other taxes, exempts some goods and services from the resulting burden. Exemptions under GST cover a wide range of commodities, including the following –
- Fruits and vegetables, grains, meat and fish, and other foods
- Cotton for khadi yarn, handloom garments, unprocessed wool, raw silk, raw jute fibre, and other raw materials
- Instruments/Tools: Agricultural tools, tools for people with disabilities.
- Vaccines, journals, newspapers, maps, books, non-judicial stamps, paper pulp articles, and other miscellaneous items
- The Indian government established GST to eliminate the taxation’s cascading effect. This system harmonises India’s tax rules, methods, and rates, streamlining the country’s tax structure.