SGST, which stands for State Goods and Service Tax, is one of the three primary components of the Goods and Service Tax system, alongside CGST and IGST. It represents the principle of "one tax, one nation." SGST is governed by the State Goods and Service Tax Act, 2016.
Alcohol for human consumption is excluded from the scope of SGST. Moreover, this tax is regulated under the State Goods and Services Tax (SGST) Act, 2017. SGST is charged on the transaction value of goods or services provided, as outlined in section 15 of the SGST Act.
The transaction value refers to the price paid or due for the supply of goods or services. Essentially, as indicated by its name, SGST is collected by the state where the goods or services are consumed, not by the state where the goods are manufactured.
Why GST?
- Prior to the introduction of GST on July 1, 2017, various indirect taxes were levied by both the central and state governments.
- The central government imposed a tax on interstate sales of goods in the form of Central Sales Tax (CST).
- Different states had varying rules and regulations, which caused considerable challenges.
- Additional taxes such as entertainment tax, local tax, and octroi were also levied.
These multiple taxes led to a lack of consistency in taxation, which hindered domestic trade across the country. They also resulted in overlapping tax systems from both the central and state governments, with different tax rates.
Key Features of SGST
- SGST is imposed and collected by state authorities on all goods and services provided for consideration.
- The collected tax is deposited into the state's treasury.
- Each state has its own SGST Act, administered by its State Goods and Service Tax Department. However, the fundamental principles of the GST law, including charges, valuation, taxable events, measurement, and classification, remain consistent across the states.
- SGST does not apply to exempted goods and services, which are not subject to GST. Additionally, SGST is not applicable to entities whose annual turnover is below the prescribed limit.
What is SGST? An Example
Under the GST framework, SGST is a tax levied on intra-state supplies of both goods and services by the state government, as regulated by the SGST Act.
Example of CGST and SGST
Imagine Ayan, a dealer in Gurgaon, who sells goods worth Rs. 20,000 to Mahesh in Bangalore. The applicable GST rate is 18%, with 9% allocated to CGST and 9% to SGST. In this case, Ayan collects Rs. 3,600, which is split equally: Rs. 1,800 goes to the Central Government, and Rs. 1,800 is deposited with the Haryana Government.
Where is SGST Applicable?
The application of SGST/UTGST, along with other tax components like IGST and CGST, depends on the nature of the transaction. These transactions are categorized into two types: Intra-State Supply and Inter-State Supply.
Intra-State Supply
Intra-State Supply refers to a situation where both the supplier and the location of supply are within the same State or Union Territory. In such cases, the seller is required to collect both CGST and SGST. After the taxes are collected, the CGST portion is deposited with the Central Government, while the SGST portion goes to the respective State Government.
For example: Gunjan Enterprises, a manufacturer based in Rajasthan, sells goods worth Rs 2,00,000 to Madhur Traders, a dealer in Rajasthan. The GST rate is 18%. As it is an intra-state transaction, the GST collected is split equally between the Central and State Governments. The total GST of Rs 36,000 is divided into two parts: Rs 18,000 is deposited into the CGST account, and Rs 18,000 is deposited into the SGST account.
Inter-State Supply
Inter-State Supply occurs when the supplier and the place of supply are in different locations, such as:
- Two separate States
- Two different Union Territories
- A State and a Union Territory
Moreover, any supply occurring in a taxable territory that is not an Intra-State supply is considered an Inter-State supply. The following supplies are also classified as Inter-State:
- Supplies to or from Special Economic Zones (SEZs)
- Imported goods or services
- Goods or services exported outside India
- Supplies to international tourists
- As a result, only IGST is levied and collected on Inter-State transactions by the Central Government.
For instance, Satya Ltd, a manufacturer in MP, supplies goods worth Rs 1,00,000 to Bhatia Traders in Punjab. The GST rate is 18%. Since this is an Inter-State transaction, the entire GST amount of Rs 18,000 is deposited into the CGST account, and no SGST is applicable.
SGST, CGST, and IGST Rates for Common Goods
| Items | SGST | CGST | IGST |
| Common items like tea, coffee (excluding instant), spices, edible oils, sugar, charcoal, essential drugs, and Indian sweets. | 2.50% | 2.50% | 5% |
| Processed foods and computers | 6% | 6% | 12% |
| Hair oils, body soaps, toothpaste, capital goods, and industrial intermediates. | 9% | 9% | 18% |
| Luxury goods such as high-end cars, air conditioners, refrigerators, cigarettes, aerated drinks, and premium motorcycles | 14% | 14% | 28% |
How Often Are SGST Rates Updated?
The GST rates have been revised several times since the introduction of the Goods and Services Tax (GST). The most recent revision took place during the 39th GST Council Meeting on March 14, 2020. Numerous other GST Council Meetings have led to further rate changes. For updates on all GST categories and rate adjustments, you can visit the official website at https://cbic-gst.gov.in/.