When learning about the GST, the first question comes to almost every person is What is IGST, CGST, UTGST and SGST. On one hand it is said that almost all indirect taxes are merged into a single tax called Goods and Service Tax and on other hand it is stated that there will be three 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 of the government now depends 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 intra state sale (i.e within 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 eg:- A dealer in Maharashtra sold 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 case the dealer collects Rs. 1800 and 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 and a state has to deal with only centre government.
Therefore if inter state sales (i.e from one state to another state) is made then seller will charge IGST in place of CGST + SGST.
For eg:- A dealer in Maharashtra sold 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 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 in transferred to the importing state. And the net result is that the Centre government got his share and importer’s state gets his.
Goods sold by a manufacturer (A) to a trader (B) in same state i.e Rajasthan for Rs. 100. Now the goods are sold by B to a trader in Gujarat i.e C 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 he was not eligible to receive it. Because the goods finally consumes in Gujarat and GST is a consumption based tax. And also Gujarat and Central government should received Rs. 27 (300*9%) as tax each 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 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