When the Goods and Services Tax, or GST, was adopted across the board in July 2017, the country’s taxation system underwent a dramatic upheaval. Although the government and allied entities supported the implementation of this new tax through different seminars and conferences, as well as helplines that business people may call, several questions remain unanswered in the minds of new business owners.
GST was created to create a unified, consumption-based tax structure. It suggests that the money from these taxes would be directed to the state in which the goods or services were consumed rather than the state in which they were manufactured. GST has resulted in a flurry of new terms for taxation authorities, such as CGST, SGST, and IGST. You should be familiar with the GST aspects before delving into the variances between them. By integrating several national and state taxes, the GST was intended to streamline tax administration, particularly for businesses.
To understand the differences between CGST, SGST, and IGST, it is important to know what they mean and how they work.
A brief on what exactly is GST?
Goods and Services Tax is a tax policy that is applied indirectly. Its purpose is to replace the former multi-stage, destination-based tax system with a single Pan-Indian tax system. To put it another way, it’s a replacement for the vast range of indirect taxes levied on any value addition in the supply chain.
What it means is that the same indirect taxes were measured at each point of sale. This one-of-a-kind, unified tax system on the supply of goods and services has supplanted indirect taxes including VAT, Entry Tax, and Central Excise Law. The Central Government of India presented the GST program for the first time in the year 2000.
The three levies that comprise the GST taxation structure are:
1. Central goods and services tax (CGST)
- The tax on supply within the state is collected by the Central Government of India.
- It is governed by the CGST Act, which states that the CGST cannot exceed 14%.
- It implies that the federal and state governments will agree to combine their taxes in an acceptable proportion for revenue sharing.
2. State goods and services tax (SGST)
- It is levied by the state.
- This tax applies to all supplies both within and outside of the state.
- It is assumed that the CGST and SGST both apply to all intra-state products and services. However, each government receives an equal part of the overall tax rate charged on intra-state suppliers of goods and services.
- To cover SGST liabilities, SGST or IGST input credit may be applied.
For example, if Mr. A in Haryana sells products worth Rs.50 lakhs to Mr. B in Rajasthan at a GST rate of 12%, the CGST, and SGST will be apportioned evenly and set at 6% on each of these goods.
3. Integrated goods and services tax (IGST)
- This tax is collected by the Central Government of India.
- This tax is levied on the transportation and sale of all products and services from one state to another.
- The IGST Act governs all IGST-related taxation. This category includes both manufactured and exported goods.
- Exports of goods and services are zero-rated under IGST, with taxes split evenly between the central and state governments.
For example, the Central Government of India collects the tax total when Mr. C from Punjab sells products worth Rs.20 lakhs to Mr. D from Chhattisgarh which is subject to an 18 percent IGST.
What is the difference between CGST, SGST, and IGST?
The SGST, CGST, and IGST are three forms of GST imposed by the national and state governments based on supply and consumption.
The Goods and Services Tax is a sales tax that applies to all goods and services. GST is a multi-step tax paid at each level of processing, and because it is destination-based, it is charged at the point of final consumption rather than any point of origin.
The table below will help you understand the major difference between CGST, SGST, and IGST.
| Criteria | CGST | SGST | IGST |
| Meaning | The central government uses it to replace existing taxes like the service tax and excise tax.
| The state imposes it in place of existing taxes, such as the sales tax, luxury tax, and entry tax, among others. | This tax combines the CGST and SGST. It is imposed by the central government of India. |
| Applicability | It only applies to the state. | It applies only within the state. | It applies only to interstate supply. |
| Input Tax Credit | Credits from the CGST cannot be used for IGST or other taxes. | Credits can be applied only to SGST and IGST. | All forms of GST can be claimed as IGST input tax credits. |
| Collection of Tax | CGST is collected by the central government. | SGST is collected by the state government. | IGST is collected by the central government. |
| Exemption Limit | There is an Rs.20 lakh exemption limit. | There is an Rs.20 lakh exemption limit. | There is no limit to the number of exemptions that can be requested. |
| Composition Scheme | Dealers with a turnover up to 50 lakh rupees can take advantage of the composition scheme. | Dealers with a turnover up to 50 lakh rupees can take advantage of the composition scheme. | Composition schemes are invalid in interstate supply. |
| Free Supplies | All unrestricted supplies are subject to this provision. | All unrestricted supplies are subject to this provision. | All unrestricted supplies are subject to this provision. |
| Registration | No registration will be possible until the turnover reaches 20 lakh rupees. (10 lakh for the northeast).
| There will be no registration until the turnover reaches 20 Lakh rupees. (10 Lakh in northeastern states). | Registration is required for any supply made outside the state. |
The difference between GST Forms with examples
The only differences between CGST, SGST, and IGST are the taxing authority and the point of sale.
The following example clarifies the difference between CGST, SGST, and IGST.
In Karnataka, Producer X sells products worth Rs. 30,000 to Dealer Y. Dealer Y resells them to Trader Z in Orissa for Rs. 35,500. In Orissa, trader Z eventually sells to end-user A for Rs. 42,000.
Assume that the tax rates on the products sold are CGST = 9%, SGST = 9%, and IGST = 9+9=18%.
Since X sells it to Y, it is an intra-state transaction, hence CGST and SGST will apply.
Trader Z is purchasing from Dealer Y.
As a result, because this is an interstate transaction, the IGST is 18%. In Orissa, trader Z sells to end-user A as well. As it is an intrastate transaction, CGST and SGST will be applied at 9% and 9%, respectively.
Can CGST and SGST be charged concurrently?
Intra-state purchase of products or services occurs when the supplier’s position and supply location are the same. The seller may owe both CGST and SGST to the buyer in intra-state transactions. The CGST is collected by the central government, whereas the SGST is collected by the state governments. It means that the federal and state governments combine their revenues and distribute them equally to all citizens.
The amount of GST was also determined to be significantly variable depending on the type. Increased IGST revenue is a positive economic indicator since it suggests that interstate trade is expanding.
Conclusion
The GST was designed to make taxes easier for Indian businessmen and business people, but the differences between the CGST, IGST, and SGST must be acknowledged. Remember that all businesses with an income of more than Rs. 20 lakhs are subject to GST.
