The Indian Parliament enacted the Goods and Service Tax Act on March 29th, 2017, which became effective from July 1st, 2017. This reform is recognized as a monumental change in India's tax system, replacing the earlier set of indirect taxes, including excise duty, VAT, service tax, and others.
What is GST?
The Goods and Services Tax (GST) is a value-added tax imposed on the supply of goods and services meant for domestic consumption. It serves as a comprehensive, unified indirect tax law applicable throughout India.
This tax is part of the final selling price of a product. A consumer purchasing the product pays the price, which includes the GST. The business or seller then forwards the GST portion to the government.
The Central Government of India is responsible for levying this tax. For intrastate transactions, the tax is divided between the central and state governments, referred to as CGST and SGST respectively.
Objective of GST
- To simplify and eliminate multiple tax systems.
- Enhance compliance among businesses.
- Lower the overall prices of goods and services.
- Increase the national revenue.
- Promote greater efficiency and productivity.
Taxes Replaced by GST
- VAT
- Octroi
- Entertainment Tax
- Lottery Tax
- Luxury Tax
- Purchase Tax
- Service Tax
- Additional Excise Duty
- Central Excise Duty
- And other taxes
Different Types of GST Tax
GST is levied based on the nature of the transaction. Below are the types of transactions and the corresponding taxes:
- Inter-State Transactions
An inter-state transaction occurs when goods or services are supplied from one state to another. For example, if iron ore is supplied from Jharkhand to West Bengal, the GST collected is shared between the central government and the West Bengal government (state of consumption).
- Intra-State Transactions
Intra-state transactions happen when goods or services are supplied within the same state. For instance, when a business in Jharkhand supplies iron ore to a customer within the state, the GST is shared between the central government and the Jharkhand government.
GST is categorized into three primary types based on the nature of transactions:
- State Goods and Services Tax (SGST) or SGST
- Central Goods and Services Tax (CGST) or CGST
- Integrated Goods and Services Tax (IGST) or IGST
Components of GST
SGST
SGST is levied by the state government on intra-state transactions of goods and services. The revenue generated is retained by the state government in which the transaction takes place. SGST replaces earlier taxes like VAT, luxury tax, octroi, and purchase tax.
For Union Territories like Chandigarh, Puducherry, and Andaman and Nicobar Islands, SGST is replaced by Union Territory Goods and Services Tax (UGST).
CGST
CGST is levied by the central government on intra-state transactions of goods and services. It is levied along with SGST or UGST, and the collected revenue is divided equally between the central and state governments.
IGST
IGST is levied on inter-state transactions of goods and services, including imports and exports. The revenue collected is shared between the central and state governments.
Practical Application of Various Types of GST
The following table illustrates examples of how these different types of GST are applied:
| SGST | CGST | IGST |
| A merchant in Maharashtra sells goods worth Rs. 10,000 to a customer in Maharashtra.
The GST is split between SGST and CGST. |
A merchant in Maharashtra sells goods worth Rs. 10,000 to a customer in Maharashtra.
The GST is shared between CGST and SGST. |
A merchant in Maharashtra sells goods worth Rs. 10,000 to a customer in Karnataka.
The applicable GST is IGST. |
| When the GST rate is 18%, it is divided equally between SGST and CGST, with each part being 9%.
The total price paid by the customer is Rs. 11,800. |
When the GST rate is 18%, it is divided equally between SGST and CGST, with each part being 9%.
The total amount charged is Rs. 11,800. |
When the GST rate is 18%, the full amount is collected as IGST.
The total amount billed is Rs. 11,800. |
| The GST value is Rs. 1800. | The GST value is Rs. 1800. | The GST value is Rs. 1800. |
| SGST is Rs. 900, and CGST is Rs. 900. | CGST is Rs. 900, and SGST is Rs. 900. | IGST is Rs. 1800. |
| The Maharashtra Government receives Rs. 900 as SGST, while the Central Government receives Rs. 900 as CGST. | The Central Government receives Rs. 900 as CGST. | The Central Government collects Rs. 1800 as IGST. |
Key Differences Between Types of GST
The distinct GST tax types differ in several aspects, which are summarized in the following table:
| Types of GST | Authority Responsible for Collection | Order of Tax Credit Application | Applicable Transactions | Authority Benefiting |
| SGST | State Government | SGST, IGST | Transactions within the same state | State Government |
| UGST | Union Territory (UT) Government | UTGST, IGST | Transactions within a Union Territory | Union Territory (UT) Government |
| CGST | Central Government | CGST, IGST | Transactions within the same state | Central Government |
| IGST | Central Government | IGST, CGST, SGST | Transactions between different states or between a state and a Union Territory (UT) | Central Government and State Government |
Who is Required to Pay GST?
The following individuals or entities are required to pay GST:
- Persons registered under GST and making taxable supplies.
- GST registered individuals under the reverse charge mechanism.
- GST registered individuals required to deduct tax at source (TDS).
- E-commerce operators registered under GST.
- E-commerce operators registered under GST required to collect tax at source (TCS).
- Individuals acting as agents for suppliers or manufacturers.
Goods Exempt from GST Payment
GST exemptions apply to certain goods and services, which include the following categories:
- Food items: Fruits, vegetables, cereals, meat, fish, etc.
- Raw materials: Cotton for khadi yarn, handloom fabrics, unprocessed wool, raw silk, raw jute fiber, etc.
- Instruments/Tools: Agricultural equipment, tools for differently-abled individuals.
- Miscellaneous: Vaccines, journals, newspapers, maps, books, non-judicial stamps, paper pulp products, etc.