How does India’s Goods and Services Tax (GST) work across different transactions? And how does it impact businesses both within and outside state borders? Let's begin by understanding the core structure of GST, a unified tax system that streamlines India's intricate taxation scenario.

The introduction of GST in India revolutionized the country’s tax system. Implemented on 1st July 2017, it aimed to simplify the tax structure by combining multiple indirect taxes into a single framework, offering a more efficient way to manage and comply with tax obligations. But what are the different types of GST, and how do they apply to various transactions?

There are 4 types of GST in India, they are:

1. CGST (Central Goods and Services Tax)
2. SGST (State Goods and Services)
3. IGST (Integrated Goods and Services Tax)
4. UTGST (Union Territory Goods and Services Tax)

This blog helps you understand the different types of GST —CGST, SGST, IGST, and UTGST along with their roles in different scenarios of Finance.

Let’s explore the central component of GST, CGST, which plays a key role in transactions within state borders. Here's how it works:

Central Goods and Services Tax (CGST)

CGST is levied by the central government on intrastate transactions (sales within the same state). When you make a sale or purchase within the same state, CGST is charged along with SGST.

Key Aspects:

1. Levied by: Central Government

2. Applicability: Only on intrastate transactions (within the same state)

3. Example:

   1. Sale price of goods: ₹1000

   2. CGST rate: 9%

   3. CGST = ₹1000 × 9% = ₹90

In this example, if the SGST is also 9%, the total GST charged will be ₹180.

Alongside CGST, SGST ensures the state government gets its share. Let’s explore its function in local trade:

State Goods and Services Tax (SGST)

SGST is imposed by the state government on intrastate sales (transactions within the same state), alongside CGST. This ensures that both the central and state governments receive their share of the tax.

Key Aspects:

1. Levied by: State Government

2. Applicability: Only on intrastate transactions

3. Example:

   1. Sale price of goods: ₹1000

   2. SGST rate: 9%

   3. SGST = ₹1000 × 9% = ₹90

In intrastate transactions, both CGST and SGST apply, as shown in the previous example.

Also Read: Mastering Exports: A Complete Guide to Letters of Undertaking (LUT) for Indian Exporters.

When businesses cross state lines, IGST comes into play. Here's how it manages interstate and international transactions.

Integrated Goods and Services Tax (IGST)

What happens when goods or services move across state borders? IGST applies to interstate transactions (when the transaction happens between two different states) or international trade. IGST ensures a smooth flow of goods across state borders without duplication of tax.

Key Aspects:

1. Levied by: Interstate and international supplies

2. Governing Act: IGST Act of 2017

3. Example:

   1. Sale price of goods: ₹1000

   2. IGST rate: 18%

   3. IGST = ₹1000 × 18% = ₹180

IGST is collected by the central government and then shared with the state where the goods are ultimately consumed.

Also Read: E-Invoicing Under GST: Everything You Need to Know

In Union Territories, UTGST replaces SGST. Let’s dive into its application to learn more:

Union Territory Goods and Services Tax (UTGST)

UTGST is similar to SGST but applies in Union Territories (UTs) where there is no state government. It is levied at the same rate as CGST to ensure similar tax administration in both states and union territories.

Key Aspects:

1. Levied by: Union Territory Administration

2. Applicability: For transactions within Union Territories

3. Example:

   1. Sale price of goods: ₹1000

   2. UTGST rate: 9%

   3. UTGST = ₹1000 × 9% = ₹90

Just like CGST and SGST, UTGST is applied to intrastate transactions within Union Territories.

Also Read: LUT Certificate: How to Download and Furnish on GST Portal

Though they all fall under the GST framework, these taxes serve different purposes. Here's how they differ:

Key Differences Between IGST, CGST, SGST, and UTGST

Here’s a quick comparison for your better understanding:

Also Read: Impact of GST on Export of Services in India.

Each GST type applies in specific scenarios. Let’s break down when and where these taxes are implemented:

Application of Different GST Types

Let’s dive deeper into how these GST types work with real-life examples to make things clearer:

Intrastate Transaction Example (CGST and SGST):

If a business in Maharashtra sells goods worth ₹1,00,000 to a customer within Maharashtra, both CGST and SGST will apply at 9% each (assuming an 18% GST rate). Here's how the calculation works:

1. Total Sale Value: ₹1,00,000

2. CGST (9%): ₹9,000

3. SGST (9%): ₹9,000

4. Total Tax Collected: ₹18,000

In this case, ₹9,000 goes to the central government, and ₹9,000 goes to the Maharashtra state government. This is how taxes are distributed under intrastate transactions, ensuring both governments receive their share.

Interstate Transaction Example (IGST):

Let’s consider an interstate transaction where a company in Maharashtra sells goods to a customer in Karnataka for ₹2,00,000. IGST applies here instead of CGST and SGST because the goods are moving between states. Assuming an 18% tax rate, the calculation is as follows:

1. Total Sale Value: ₹2,00,000

2. IGST (18%): ₹36,000

3. Total Tax Collected: ₹36,000

In this case, the entire tax amount of ₹36,000 is collected as IGST, which the central government later divides between Maharashtra and Karnataka.

Comparing GST Types with Examples

Let’s break down how different GST types apply across various situations:

Conclusion

India&apoa;s GST system is designed to simplify the taxation process, making it easier for businesses to comply and for governments to manage revenue. Whether you're involved in intrastate transactions or interstate trade, understanding the differences between IGST, CGST, SGST, and UTGST is crucial for proper tax planning and smooth business operations. By familiarizing with these types of GST, businesses can ensure accurate compliance, minimize tax-related issues, and optimize their operations across state lines.

Now you are familiar with different GST types and can ensure compliance, avoid tax issues, and optimize your inter-state operations. If you are handling international transactions, combining this knowledge with advanced payment solutions like PayGlocal simplifies global payments with multi-currency support, accurate tax planning, and smooth operations across borders. Visit PayGlocal today!

FAQs:

1. What are the types of GST in India?

   GST is divided into four types: CGST (Central), SGST (State), IGST (Integrated for interstate transactions), and UTGST (for Union Territories).

2. When is CGST and SGST applied?

   CGST and SGST are levied on intra-state transactions, where both central and state governments share the tax.

3. What is IGST?

   IGST is charged on interstate transactions or imports, and it is collected by the central government.

4. How does UTGST differ from SGST?

   UTGST is levied in Union Territories where SGST isn't applicable. It works similarly to SGST.

Resources:

1. GST Council

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