In line with the ‘One Nation One Tax’ policy, the Indian Government implemented GST (Goods and Services Tax) in 2017 to simplify the nation’s tax system. Based on the tax levying authority (central/state government) and the place of consumption of goods/services, the GST tax is classified into 3 categories: The IGST, SGST, and CGST.
Under this system, all taxes like the VAT, service tax, and the excise duty were bought under the ambit of the GST. The objective behind this was to create a unified, consumption-based tax system. As a result, the tax proceeds would be paid to the state where the goods and services were consumed instead of where they originated.
The journey of One Nation One Tax and GST began in 2000 when a committee was established to draft the law. 17 years later, the GST law came into force on July 1, 2017, when the GST bill was finally passed in the Lok Sabha and Rajya Sabha.
GST has replaced several indirect taxes, which were a part of the previous tax regime. The advantage of having one tax is that every state follows the same rate for a given product or service. Administration of taxes is easier with the Central Government deciding the policies and rates. Tax compliance is also better and hassle-free because taxpayers are not burdened with multiple return forms and due dates, and the cascading effect of various taxes has been eliminated. IGST, SGST and CGST are the different types of GST tax in India.
The Integrated Goods & Services Tax (IGST) is a tax governed by the IGST Act and levied on imports, exports, and interstate supply of goods and/or services under the GST regime. Inter-state supply of goods and services is when the location of the supplier and the place of supply are in different states. Additionally, the transaction is presumed to be interstate when goods or services are exported, imported, or supplied to or by an SEZ unit. In an interstate transaction, the seller is required to collect IGST from the buyer. The Central Government is in charge and responsible for collecting these taxes, which further divides them after they have been collected among the corresponding states.
For instance, if a trader from Gujarat sold goods worth Rs. 1,00,000 to a customer in Kerala, IGST would stand applicable since the transaction was an interstate one. Assuming the GST rate to be 12% on the product, Rs. 12,000 will be the amount of IGST to be paid. Thus, IGST includes both CGST (to be paid to the Central Government) and SGST (to be paid to the State Government) as it is collected in an integrated manner and distributed to the centre and state accordingly.
The State Goods and Services Tax (SGST) is a tax governed by the SGST Act and levied on intrastate transactions by the States under the GST regime. Intrastate supply of goods/services falls under the purview of both State GST (SGST) and Central GST (CGST); hence, both are levied as applicable. The state government levies SGST only on the goods/services bought or sold within the state. Additionally, the revenue thus generated from the tax proceeds of SGST is solely claimed by the concerned State Government.
For instance, if a trader from Maharashtra has sold goods worth Rs. 10,000 to a customer in Maharashtra, GST will apply to this transaction, which shall then be categorised into CGST and SGST. If the GST rate is assumed to be 18% (amounting to Rs. 1,800), it will be divided equally in the form of 9% SGST (Rs. 900) and 9% CGST (Rs. 900). Hence out of the total amount of Rs. 1,800 charged to the trader in the form of taxes, a revenue of Rs. 900 will go to Maharashtra State Government in the form of SGST.
The Central Goods and Services Tax (CGST) is a tax governed by the CGST Act and levied by the Central Government on intrastate goods and services supply. As mentioned earlier, the intrastate supply of goods/services falls under the purview of the State (SGST) and Centre (CGST); hence, both are levied as applicable. Both the Central and State Governments agree upon combining their levies with an equal proportion of revenue sharing between the two.
Indian Government operates at 2 levels, namely the Central and the State Governments. Both have duties and responsibilities set according to the Constitution of India, and they both collect tax revenue. Before GST, various indirect taxes were charged by both the State and the Central Government, leading to many inefficiencies in the taxation system. However, in line with the ‘One Nation One Tax’ policy, all indirect taxes were brought under one head of GST with a vision to eliminate all inefficiencies and complexities in the system. Additionally, to ensure hassle-free and transparent distribution of taxes, the GST was split into IGST, SGST, and CGST. This move not only united the country’s tax structure but also ensured that the State Government isn’t deprived of funds at the same time.
IGST, CGST, and SGST are to be charged on all types of transactions like sales, purchases, transfers, imports, and other services, and although they are sub-categories of GST, the tax collecting authority for all the three are different. IGST is levied on imports, exports, and interstate (between 2 states) supply of goods and/or services, while CGST and SGST are charged on intrastate (within a state) transactions. While the Central government collects IGST and CGST, SGST is collected by the respective state government where the goods are bought/sold, and the transaction takes place.
|Point of Distinction||IGST||CGST||SGST|
|Applicability||Inter-state transactions||Intra-state transactions||Intra-state transactions|
|Collecting authority||Central government||Central government||State government|
|The authority that gets benefited||Central and state government||Central government||State government|
|Input Tax adjustments permissible||Input tax credit of IGST can be used against either CGST, SGST, or IGST.||Input tax credit of CGST can be used against CGST or IGST, but not against SGST||Input tax credit of SGST can be used against SGST or IGST, but not against CGST|
In the case of interstate transactions, the buyer pays the IGST to the supplier, who then hands it over to the Central government. The collected tax is later divided into CGST and SGST and distributed accordingly. CGST and SGST are collected directly in the case of intrastate transactions and indirectly in the form of IGST in cases of interstate transactions. On the contrary, when intrastate transactions occur, the supplier will collect both CGST and SGST from the customer and hands them to the Central and State Governments.
Under GST, the buyer pays IGST to the supplier on inter-state transfer of goods and services, which is submitted to the Central government. This is later divided into CGST and SGST. In the case of intrastate transactions, the supplier submits the collected tax separately and directly with the Central Government and the respective State Government.
Also, the transparency in terms of knowing where the taxes are going in each of the cases of CGST, SGST, and IGST makes it a very positive process, with every penny spent being accounted for.
Additionally, GST is predominantly technologically driven, and all the activities like registration, refund application, return filing, etc., need to be done online on the GST portal, which makes it fairly more convenient and quicker.
Ans: The central government is in charge of collecting the CGST amount.
Ans: The state government is in charge of collecting the SGST amount
Ans: The central government is in charge of collecting the IGST amount
Ans: No, the GST rates differ from commodity to commodity. For example, the GST rate for spices is 5%, while that for cornflakes is 18%.
Ans: No, certain commodities are not taxed for example fresh vegetables, salt, etc.
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