What is GST?
Types of GST – What is CGST, SGST and IGST?: The Goods and Service Tax Act was passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017. It is also known as GST. It is an indirect tax that is passed to replace or abolish many indirect taxes in India like the central excise duty, central sales tax, VAT, services tax, additional duties of custom, etc.
Under the GST the tax is levied on the basis of point of sale (place of supply). If the sales are within a boundary of a particular state/UT it’s called the case of intra-state sales, and as per GST act Central GST and State GST will be charged. And If the sales are outside the boundary of the particular state/UT they will be called inter-state sales and accordingly, the Integrated GST is chargeable. It is mandatory for the supplier to mention the CGST, SGST, or IGST as the case may be in the TAX INVOICE.
What Are the 3 Types of GST?
In GST the three taxes applicable which are mentioned above are levied as per the nature of the transaction we can understand the same with the help of some examples
It is the tax levied by the Central Government on an intra-state sale (supply within a state) It is applicable on every supply of goods or services which are sold or rendered within the geographical boundary of the state/UT.CGST will always be imposed with SGST which means in every transaction half amount of the tax will be CGST and the other half will be SGST. Currently, CGST has slabs rates of 2.5%, 6%, 9%, and 14% which may have some change in the future.
E.g., For MR. Aof Delhi selling the goods to MR. B of Delhi in this transaction both the seller and buyer are from the same state or the transaction is happening within a state therefore the CGST & SGST will be charged as per the prescribed rate of the goods.
It is the tax collected by the state government on an intra-state sale (supply within a state) It is applicable on every supply of goods or services which are sold or rendered within the geographical boundary of the state/UT.SGST will always be imposed with CGST that means in every transaction the tax amount will be equally divided between CGST and SGST that means between the central government and state government.
NOTE: The rate of CGST & SGST will always be the same
It is the tax collected by the central government on an inter-state sale (supply outside the state) It is applicable to every supply of goods or services which are sold or rendered outside the geographical boundary of the state/UT.IGST will always be imposed individually that means in this transaction other taxes will not be charged.
E.g., For MR. Aof Delhi selling the goods to MR. B of Maharashtra in this transaction the seller and buyer are from different states or the transaction is happening in two different states therefore the IGST will be charged as per the prescribed rate.
Division of Revenue between Central and State Governments from GST
The Goods and Services Tax (GST) system in India follows a mechanism for the division of revenue between the Central and State Governments. The division is based on the concept of CGST (Central Goods and Services Tax), SGST (State Goods and Services Tax), and IGST (Integrated Goods and Services Tax). Here’s an overview of how the revenue is allocated:
CGST (Central Goods and Services Tax): The revenue collected under CGST is entirely managed by the Central Government. It applies to intra-state transactions, where the supply of goods or services occurs within the same state. The tax collected through CGST goes directly to the Central Government’s account and contributes to its revenue pool.
SGST (State Goods and Services Tax): The revenue collected under SGST is solely managed by the respective State Government. Similar to CGST, SGST applies to intra-state transactions. The tax collected through SGST is allocated to the State Government’s account, thereby contributing to its revenue.
IGST (Integrated Goods and Services Tax): IGST is applicable to inter-state transactions, involving the movement of goods or services from one state to another. The revenue collected under IGST is shared between the Central and State Governments. However, the allocation follows a specific formula decided by the GST Council, which considers factors such as the destination state and the rate of tax. The revenue is divided between the Central and State Governments based on this predetermined formula.
The GST Council, which comprises representatives from both the Central and State Governments, plays a crucial role in determining the division of revenue. It discusses and decides the tax rates, tax slabs, exemptions, and any changes related to the GST framework. The Council ensures that the revenue distribution is fair and appropriate, considering the needs and requirements of both the Central and State Governments.
The division of revenue between the Central and State Governments helps in maintaining a balance in fiscal responsibilities and resource allocation. It enables the Central Government to fund various national-level programs and initiatives, while the State Governments have the necessary funds to support their respective developmental activities.
Overall, the revenue collected under CGST, SGST, and IGST is vital for both the Central and State Governments in fulfilling their financial obligations and meeting the needs of their constituents. The division of revenue ensures a collaborative approach in the implementation and management of the GST system, promoting cooperative federalism in tax administration.