When learning about Goods and Service Tax, the first question comes to almost every person is: What is IGST, CGST, UTGST, and SGST? On one hand it is stated that almost all indirect taxes are merged into a single tax called Goods and Service Tax, and on the other hand, it is stated that there will be four taxes as IGST, CGST, UTGST, and SGST.
IGST stands for Integrated Goods and Service Tax
CGST stands for Central Goods and Service Tax
SGST stands for State Goods and Service Tax
UTGST stands for Union Territory Goods and Service Tax
What is CGST, SGST and UTGST?
Since GST subsumed both indirect taxes of central government (excise duty, service tax, custom duty, etc. ) and state governments (VAT, Luxury tax, etc.), both the government now depend on GST for their indirect tax revenue. Therefore the GST rate is composed of two rates, one of CGST and one of SGST. Therefore, while making an intra-state sale (i.e., sale within the same state), CGST collected will go to the central government and SGST collected will go the respective state government in which sale is made.
UTGST is more or less similar to SGST. In a state, SGST will be applicable while in an union territory UTGST will be applicable.
For example: – A dealer in Maharashtra sells goods to the consumer worth Rs. 10,000. The GST rate is 18% comprising of CGST rate of 9% and SGST rate of 9%. In such a case the dealer will collect Rs. 1800, Rs. 900 will go to the central government and Rs. 900 will go to the Maharashtra government.
What is IGST?
GST is a consumption based tax i.e.; the tax should be received by the state in which the goods or service are consumed not by the state in which such goods are manufactured.
IGST is designed to ensure seamless flow of input tax credit from one state to another. It is designed so that a state doesn’t have to deal with every other state to settle the tax amounts. A state has to deal with only Central government.
Therefore if inter-state sales (i.e., sale from one state to another state) is made then the seller will charge IGST in place of CGST + SGST.
For example: – A dealer in Maharashtra sells goods to its dealer in Rajasthan worth Rs. 1,00,000. The GST rate is 18% comprising of CGST rate of 9% and SGST rate of 9%. In such a case the dealer has to charge Rs. 18,000 as IGST.
How GST credits will be adjusted between states and Centre
The exporting State will transfer to the Centre the credit of SGST used in payment of IGST. This way the exporting state will not get any revenue from tax.
The Centre will transfer to the importing State the credit of IGST used in payment of SGST. This way the importer’s state will get the full amount of SGST.
This way any tax earned by exporting state in such goods is transferred to the importing state. And the net result is that the Central government and importing state both get their respective shares.
A manufacturer (A) sells goods to a trader (B) in same state i.e. Rajasthan for Rs.100. Now, the goods are sold by B to a trader (C) in Gujarat for Rs.175 and finally sold by C to the consumer (D). Assuming CGST @ 9% and SGST @ 9%.
|Amount Received as Tax by|
|Sale Price||Rajasthan||Gujarat||Central||Invoice Amount|
|A to B||Rs. 100||100*9% = Rs. 9||0||100*9%= Rs. 9||100+18= Rs. 118|
|B to C||Rs. 175||0||0||175*18%= Rs. 31.5
Less: CGST Credit of Rs. 9
Less: SGST Credit of Rs. 9
Payment of Rs. 13.5
|175+31.5= Rs. 206.5|
|C to D||Rs. 300||0||300*9%= Rs. 27
Less: IGST Credit of Rs. 4.5
Payment of Rs. 22.5
|300*9%= Rs. 27
Less: IGST Credit of Rs. 27*
Payment of Rs. 0
|300+54= Rs. 354|
|Total Receipt||Rs. 9||Rs. 22.5||Rs. 22.5|
* Any credit standing for IGST should be first utilized for payment of CGST and then for payment of SGST.
This will complete the procedure on behalf of the tax payers. But as you can see from the above example the Rajasthan Government gets Rs. 9 as tax when it was not eligible to receive it. This is because the goods are finally consumed in Gujarat and GST is a consumption based tax. Also Gujarat and Central government should each receive Rs. 27 (300*9%) as tax while they have received only Rs. 22.5 each. Therefore following transaction takes place as defined above.
The exporting State (Rajasthan) will transfer to the Centre the credit of SGST used in payment of IGST which is Rs. 9. (Transaction B to C).
The Centre will transfer to the importing State (Gujarat) the credit of IGST used in payment of SGST which is Rs. 4.5 (Transaction C to D).
This way Rajasthan’s Government revenue is Nil, Gujarat’s revenue is Rs. 27 and Centre’s revenue is also Rs. 27.
Other GST Guides
Accounts and Records to be maintained under GST
Composition Scheme under GST
GST Input Tax Credit Calculator
GST Payment Due Dates and Interest on Late Payment
GST Returns – All you need to know
Input Tax Credit (ITC) under GST
Refunds under GST
Registration Under GST – A Comprehensive Guide
TDS under GST
Time of Taxation under GST
Valuation of Goods/Services under GST