The Goods and Services Tax (GST) was proposed multiple times by different governments before being officially implemented on July 1, 2017. The main goal behind GST was to establish a ‘One Nation, One Tax’ system. GST consolidated several existing taxes and has been categorized into the following types:
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Central Goods and Services Tax (CGST)
CGST replaced various taxes previously levied by the central government, such as central excise duty, central surcharges, and other central indirect taxes.
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State Goods and Services Tax (SGST)
SGST replaced all state-level taxes, including VAT, state sales tax, and various state cesses and surcharges.
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Integrated Goods and Services Tax (IGST)
IGST is applied to the movement of goods and services between different states.
There are a few products that still do not come under the ambit of GST, and sales tax/VAT is still applicable to them.
For example, alcohol, petrol, diesel, natural gas, airline fuel and a few others. Examples of services where GST is not applicable are wages and salary, electricity and a few others. While the government wants to limit the price of alcohol and limit consumption, and hence alcohol has not been brought under the GST ambit, petrol continues to bring high amounts of revenue for the states.
Let’s dive deeper into CGST.
Understanding CGST
CGST refers to the Central Goods and Services Tax, which consolidates all central taxes previously applicable to the intrastate supply of goods and services. ‘Intrastate’ means within the same state. The CGST Act of 2017 applies throughout India, excluding Jammu and Kashmir.
For intrastate transactions, both CGST and SGST are applicable.
CGST revenues are allocated to the central government, while SGST revenues go to the respective state governments.
For example, if a manufacturer makes a product in Maharashtra and sells it within the state only, SGST and CGST both will be applicable, wherein SGST will go to the Maharashtra state government’s coffers and Central Goods and Service Tax will go to the central government’s kitty.
Maharashtra has consistently ranked as one of the highest GST revenue-generating states, followed by Karnataka.
Typically, the total tax liability is split equally between the central and state governments.
These rates are determined by the GST Council, which convenes as needed. The most recent meeting occurred in September 2019, and the rates mentioned here were applicable as of October 1, 2019.
The GST structure includes several tax slabs, which are as follows:
|
GST Slab Rates |
Details |
|
5% |
Products such as cream, yogurt, paneer, cashew nuts, raisins, fruits, and nuts fall under this slab. Here, 2.5% goes to the state and 2.5% to CGST. Common household items are taxed at this rate. |
|
12% |
Items such as citrus fruits, jams, sausages, bottled water, statues, pots, and geometry boxes fall under this category. The 12% tax is equally split between SGST and CGST at 6% each. |
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18% |
Products like bindis, chocolates, pens, soap, toothpaste, and industrial items are taxed at 18%. This rate is split equally, with 9% going to SGST and 9% to CGST. |
|
28% |
Luxury items such as cigarettes, caffeinated drinks, pan masala, motor vehicles, air conditioners, and refrigerators are taxed at 28%. The split is 14% each for SGST and CGST. |
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3% |
Items like gold, silver, platinum, imitation jewelry, etc., are taxed at 3%, with 1.5% going to SGST and 1.5% to CGST. |
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0.25% |
Precious stones are taxed at 0.25%, with the tax divided equally between SGST and CGST (0.125% each). |
|
0% |
Certain goods are exempt from GST, such as live animals (swine, bovine, birds, fish), dairy products (curd, lassi, buttermilk), fruits (bananas, apples, grapes), and sanitary napkins. |
The Central GST Act of 2017 contains a detailed list of all the goods and services under each GST slab.
CGST Background
The Central Goods and Services Tax (CGST) was introduced through the Central Goods and Services Tax Act of 2017. It was designed to replace various indirect taxes like service tax, central excise duty, central sales tax, and others.
The revenue generated from CGST is collected by the Government of India.
Aims of the CGST Act, 2017
The main aim of the CGST Act is to resolve several issues tied to the tax system.
The act was introduced to address concerns such as double taxation, high tax duties (including octroi, entry tax, and check post charges), and to establish a simplified compliance structure in India.
Key Characteristics of the CGST Act, 2017
The significant features of CGST include the following:
- CGST is applicable to the supply of all goods and services within a state (intra-state supply).
- It allows taxpayers to self-assess the taxes they are required to pay.
- CGST helps in reducing the tax burden on various goods and services.
- Penalties and fines are enforceable under CGST provisions for violations of tax regulations.
- To prevent tax evaders from selling goods or services, the recovery of taxes can be pursued through tax arrears under CGST provisions.
CGST Regulations
- If a business falls under the GST composition scheme, a supply bill must be issued.
- Every taxable goods and services transaction must be invoiced (for businesses registered under GST).
- Invoices must include a unique serial number and be listed sequentially.
- CGST and SGST are filed in equal proportions; for instance, an 18% GST rate will result in 9% CGST and 9% SGST.
Required Documents for CGST Registration
- Application form
- PAN Card
- Aadhaar Card
- Cancelled cheque leaf
- Address proof
Why are there Three GST Categories?
Given that GST’s goal is 'One Nation, One Tax', why do we have three different categories? The reason lies in India's federal structure. Our country has multiple layers and levels of government, and the federal system allows both the central and state governments to levy and collect taxes. Prior to GST, the indirect taxes were separately imposed by the state and central governments, but now they are consolidated under a single tax system.
So for business services and goods sold and bought within a state, there is a different system where state GST and central GST are applicable, and both take their share. For transactions between states, for goods sold and services rendered, IGST is levied.
IGST is essentially a combination of CGST and SGST, and the seller deposits the tax at the IGST rate with the central government, which then distributes it between the states.
For instance, under the 18% GST rate slab:
- IGST for interstate movement is 18%
- CGST: 9%
- SGST: 9%