You are on page 1of 12

Guide to CGST, SGST and IGST

GST is a destination tax, meaning the tax base will shift from origin to consumption. Hence, the
imports or end-use will be liable to tax and exports or production will be relieved of the burden
of tax. Under the present regulation, on a taxable event, there could be multiple tax liabilities like
central excise, in case of manufacturing, service tax in case of sale of service and State VAT in
case of sale of goods. Under GST, there would be a shift from multiple taxes to a single taxable
event.

Inter-State vs Intra-State

To understand the concepts of CGST, SGST and IGST, it is first important to understand the
concept of inter-state vs intra state supply of goods and service, under GST. As in every taxable
transaction, it is important to distinguish between inter-state vs intra-state supply to determine if
CGST or SGST or IGST would be applicable.

To determine if a supply is inter-state or intra-state, the location of the supplier and the place of
supply must first be determined.

Inter-State Supply

An inter-state supply of goods or service is one where the location of supplier of goods/service
and place of supply are in different states. In addition, supply of goods or service to or by an SEZ
developer or SEZ unit, supply in the course of import of goods or service, supply when supplier
is located in India and the place of supply is located outside India (export) and any other supply
not covered under intra-state is treated as inter-state supply.

Intra-State Supply

An intra-state supply of goods or service is when the place of supply is in the same state as the
location of the supplier. Intra-state supply does not include supply of goods/service to SEZ units
or developers, imports or exports.

How GST is Levied?


GST would be levied by both, the Central Government and the State Government, on supply of
goods and/or services. The power to tax on supply of goods and services would also be vested in
the hands of both, the State and Central Government. However, in case of inter-state supply, the
power to tax would be vested with the Central Government, while the revenue of the final
transaction would be transferred to the State and the Union similar to intra-state transaction. The
following model shows how GST is levied in India broadly:

Illustration- How GST is Levied?

Meaning of CGST or Central GST

Central GST or CGST would be levied under the CGST Act on the intra-state supplies of goods
and services. Hence in case of intra-state supplies of goods and services, both the Central and
State government would combine their levies with an appropriate revenue sharing agreement
between them. The power to levy CGST and SGST has been provided for in Section 8 of the
GST Act, where it has been mentioned that:
The following taxes shall be levied on all intra-state supplies of goods, or services or both, at
such rates specified in the Schedule to the said Act on the recommendation of the Council, but
not exceeding 14%, each. Such CGST and SGST is to be paid by a taxable person.

Highlights of CGST

CGST is applicable on both, goods and services.


CGST is levied by the Central Government through a separate statute on all transactions
of goods and services made for a consideration.
Proceeds would be shared between the Central and State Government.

Meaning of SGST or State GST

State GST or SGST is a tax levied under the SGST Act on intra-state supplies of goods and
services, that is administered by the respective State Government. SGST lability can be set off
against SGST or IGST input tax credit only.

Highlights of SGST

SGST is levied by the State Governments through a statute on all transactions of supply
of goods and services.
SGST would be paid to the accounts of the respective State Government.

Meaning of IGST or Integrated GST

Integrated GST or IGST is the tax levied under the IGST Act on the supply of any goods and/or
services in the course of inter-state trade across India. Further, IGST would include any supply
of goods and/or services in the course of import into India and export of goods and/or services
from India. IGST will replace the present Central State Tax which is levied on the inter-state
sales of goods. Thus, IGST would be applicable for all inter-state transactions, import and export
of goods and/or services.

Highlights of IGST

Central Government would levy and collect IGST instead of CGST or SGST.
Levied on inter-state supply of goods and/or services.
Includes import of goods and/or services.
Exports would be zero rated.
IGST would be shared between the Central and State Government.

Calculating CGST, SGST and IGST

The following illustrations shows the methodology for calculating CGST and SGST in case
of intra-state supply:

Lets assume that an almond trader in Mumbai, Maharashtra supplies almonds worth Rs.1 lakh to
a shop in Pune, Maharashtra and the rate of CGST is 6% and SGST is 6%. In such a case, the
almond trader would charge a CGST of Rs.6000 and SGST of Rs.6000 on the basic value of the
product. The trader would then be required to deposit the CGST component into a Central
Government account while the SGST portion into the account of the concerned State
Government.

The following illustrations shows the methodology for calculating IGST in case of inter-
state supply:

Lets assume that an almond trader in Mumbai, Maharashtra supplies almonds worth Rs.1 lakh to
a shop in Chennai, Tamil Nadu and the rate of IGST is 12%. In such a case, the almond trader
would charge a IGST of Rs.12000 on the basic value of the product. The trader would then be
required to deposit the IGST component into a Central Government account.
Taxable Person under GST

Taxable person under GST is anyone who is registered under GST or required to be registered
under GST. Various criterias like turnover, business activity or transaction have been specified
in GST Act, which details persons liable to be registered under GST. Further, any person having
registration under Service Tax, VAT or Central Excise on the date of GST coming into force will
automatically be considered a taxable person under GST.

GST Definition of Taxable Person

The term person has been defined in Section 2(73) of the GST Act as follows:

An Individual
A Hindu Undivided Family
A Company
A Partnership Firm
A Limited Liability Partnership
An Association of Persons or a Body of Individuals, whether incorporated or not, in India
or outside India
Any Corporation Established by or under any Central, State or Provincial Act, or a
Government Company
Any body corporate incorporated by or under the laws of a country outside India
A co-operative society registered under any law relating to cooperative societies
A local authority
Government
Society as defined under the Societies Act, 1860
Trusts Artificial judicial person, not falling within any of the above categories

The definition for taxable person under GST is similar to the definition in the existing Service
Tax law. Its important to note that the definition for taxable person includes all kinds of judicial
persons (artificial persons) also and not only natural persons.

Who needs GST Registration?


The criteria for persons who should be registered under GST is provided under Chapter 6 of the
GST Act. As per the GST Act, the following persons are required to obtain GST registration:

Aggregate Turnover Criteria

Any supplier of goods and/or services who makes a taxable supply with an aggregate turnover of
over Rs.20 lakhs in a financial year is required to obtain GST registration. In special category
states, the aggregate turnover criteria is set at Rs.10 lakhs.

Special Category States under GST

Currently, Assam, Nagaland, Jammu & Kashmir, Arunachal Pradesh, Manipur, Meghalaya,
Mizoram, Uttarakhand, Tripura, Himachal Pradesh, and Sikkim are considered special category
states. The National Development Council composed of the Prime Minister, Union Ministers,
Chief Ministers and members of the Planning Commission determines the list of special category
states in India. Also, the decision to accorded special status to a State is based on factors like:
hilly and difficult terrain; low population density and or sizeable share of tribal population;
strategic location along borders with neighboring countries; economic and infrastructure
backwardness and non-viable nature of state finances.

Mandatory GST Registration Criteria

Some taxable persons who do not qualify for GST registration under the aggregate turnover
criteria are required to mandatorily obtain GST registration, if they satisfy any of the following
criteria:

Persons making any inter-state taxable supply

Inter-state supply is supplying goods or services from one state to another. Hence, any taxable
person who is involved in supplying goods or services to persons outside of the State, is required
to mandatorily obtain GST registration.
Casual taxable persons making taxable supply

Casual taxable person is a person who occasionally undertakes supply of goods and/or services
and has no fixed place of business. An example of a casual taxable person would be a fireworks
shops setup during Diwali festival time, selling fireworks temporarily.

Persons who are required to pay tax under reverse charge

Under GST, for most goods and/or services, the liability for payment of tax rests with the
supplier. However, in some cases, the liability to pay tax (GST) would rests with the recipient of
the goods or services, instead of the the supplier. Such transactions are called reverse charge.
Hence, any person (recipient of goods or service) who is required to pay tax under reverse charge
must mandatorily obtain GST registration.

Non-resident taxable persons making taxable supply

Non-resident taxable person is any person who occasionally supplies goods or services to
recipients in India, but who has no fixed place of business or residence in India. All non-resident
taxable persons are mandatorily required to obtain GST registration, irrespective of aggregate
turnover criteria.

Persons who are required to deduct tax under GST

According to Section 51 of the GST Act, the Government may mandate a department or
establishment of the Central Government or State Government or local authority or
Governmental agencies or a category of persons to deduct tax at the rate of 1% from the payment
made or credited to the supplier, where the total value under a contract, exceeds Rs.2.5
lakhs. Such persons are required to mandatorily obtain GST registration and are referred to as
deductor.
Persons who make taxable supply of goods or services on behalf of other other persons

Any person who makes a taxable supply of goods or services on behalf of other persons would
include agents, brokers, dealers, etc., Such persons are required to mandatorily obtain GST
registration.

Input Service Distributor

Input Service Distributor means a supplier of goods or services which receives tax invoices for
the receipt of input services and issues a prescribed document for the purposes of distributing the
credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a
supplier of taxable goods or services.

Electronic Commerce Operator

Electronic commerce is the supply of goods or service, including digital products over digital or
electronic network. An electronic commerce operator is any person who owns, operates or
manages digital or electronic facility or platform for electronic commerce. All electronic
commerce operators are mandatorily required to obtain GST registration, irrespective of
turnover.

Person supplying online information and database access or retrieval services (OIDAR)

Any person supplying online information and database access or retrieval services from a place
outside India to a person in India is required to obtain GST registration. Online information and
database access or retrieval means
providing data or information, retrievable or otherwise, to any person, in electric form through a
computer network.

Persons who supply goods or services through electronic commerce operators

Some persons who supply goods or services through electronic commerce operators, other than
supplies where the electronic commerce operator is required to collect tax at source on behalf of
the supplier is mandatorily required to obtain GST registration.
Under GST, The Government has the power to specify categories where the tax would be liable
to be paid by the electronic commerce operator if the services are supplied through it.

Persons Having Service Tax or VAT or Central Excise Registration

All person who, on the day immediately preceding the appointed day is having a service tax or
VAT or central excise license under an existing law is required to be registered under GST.
Hence, migration to GST is mandatory for all taxable persons having an existing registration.

Transferee or Successor of a Business

Any person who is a transferee or a successor of a business, that was carried on by a persons
registered under GST is required to be registered under GST with effect from the date of such
transfer or succession.

Who is NOT Required to Obtain GST Registration

Any person who is engaged exclusively in the business of supplying goods or services that are
not liable to tax under GST or wholly exempt from tax under GST is exempt from obtaining
GST registration.

Also, an agriculturist, to the extent of supply of produce out of cultivation of land is exempt from
obtaining GST registration. Under GST, agriculturist means an individual or a Hindu Undivided
Family who undertakes cultivation of land:

By own labour, or
By the labour of family, or
By servants on wages payable in cash or kind or by hired labour under personal
supervision or the personal supervision of any member of the family;

The GST is a Value added Tax (VAT) is proposed to be a comprehensive indirect tax levy on
manufacture, sale and consumption of goods as well as services at the national level. It will
replace all indirect taxes levied on goods and services by the Indian Central and State
governments. Though GST is considered to be a historical tax reform in India, it also has some
demerits. We here would look into GST Taxation and deal with its advantages and
disadvantages.

GST Advantages

1. GST is a transparent tax and also reduce number of indirect taxes.


2. GST will not be a cost to registered retailers therefore there will be no hidden taxes and
and the cost of doing business will be lower.
3. Benefit people as prices will come down which in turn will help companies as
consumption will increase.
4. There is no doubt that in production and distribution of goods, services are increasingly
used or consumed and vice versa.
5. Separate taxes for goods and services, which is the present taxation system, requires
division of transaction values into value of goods and services for taxation, leading to
greater complications, administration, including compliances costs.
6. In the GST system, when all the taxes are integrated, it would make possible the taxation
burden to be split equitably between manufacturing and services.
7. GST will be levied only at the final destination of consumption based on VAT principle
and not at various points (from manufacturing to retail outlets). This will help in
removing economic distortions and bring about development of a common national
market.
8. GST will also help to build a transparent and corruption free tax administration.
9. Presently, a tax is levied on when a finished product moves out from a factory, which is
paid by the manufacturer, and it is again levied at the retail outlet when sold.
10. GST is backed by the GSTN, which is a fully integrated tax platform to deal with all
aspects of GST.

GST Disadvantages

1. Some Economist say that GST in India would impact negatively on the real estate
market. It would add up to 8 percent to the cost of new homes and reduce demand by
about 12 percent.
2. Some Experts says that CGST(Central GST), SGST(State GST) are nothing but new
names for Central Excise/Service Tax, VAT and CST. Hence, there is no major reduction
in the number of tax layers.
3. Some retail products currently have only four percent tax on them. After GST, garments
and clothes could become more expensive.
4. The aviation industry would be affected. Service taxes on airfares currently range from
six to nine percent. With GST, this rate will surpass fifteen percent and effectively double
the tax rate.
5. Adoption and migration to the new GST system would involve teething troubles and
learning for the entire ecosystem.

For the Common Man Items Expected to Get Cheaper

The following things/items are expected to become cheaper under GST for the common
man:

Prices of movie tickets may become cheaper in most states


Dining in restaurants
Two-wheelers
Entry-level sedan (except small cars)
SUVs and luxury or premium cars
Televisions
Washing machines
Stoves

For the Common Man Items Expected to Get Costlier

The following things/items are expected to become costlier under GST for the common
man:

Mobile bills
Renewal premium for life insurance policies
Banking and investment management services
Basic luxuries for a common man like WIFI and DTH services, online booking of tickets
may become costlier.
Residential rent
Health care
School fees
Courier services
Commuting by metro or rail may become expensive.
Aerated drinks
Cigarettes and tobacco products.

You might also like