What are SGST, CGST and IGST?

GST is a tax based on destination and each person will need to pay GST on any goods and services consumed. This means that the tax will be received by the state in which the goods and services and consumed, not by the state in which the goods are manufactured.

To understand how GST is applicable, it is important to know if the transaction is an Intra State or an Inter-State supply.

If a client is in the same state as the supplier GST will be paid as:

CGST (central GST) that will be collected by the center
SGST (state GST), that will be collected by the state.

*It’s important to mention here that CGST and SGST will be treated as separate entities and will be taxed separately on your invoice.

If the client is located in a different state, then GST will be paid as:

IGST (integrated GST), that will be collected by the centre from the buying state.

What are Central Goods and Services Tax (GGST) and State Goods and Services Tax (SGST)?

In GST, CGST is a tax component that applies on intra state supplies of goods and services, by the central government. SGST is a tax component that applies on the same intra state supplies that is collected by the state government. This means that both the state and central governments agree to combine their levies and share the revenue from these levies in equal proportion.

Let’s take an example to see how CGST and SGST work:

Vijay is a trader from Pune, Maharashtra that sells products worth Rs. 1000 to Hemant in Mumbai, Maharashtra. The GST rate that applies to these products is 5% and will be comprised of a CGST rate of 2.5% and a SGST rate of 2.5%.So Vijay will have to collect from Hemant a grand total of Rs. 1100, out of which Rs. 50 goes to the central government and Rs. 50 goes to the state government.

What is Integrated Goods and Services Tax (IGST)?

GST is the tax levied on all inter-state supplies (supplies between different states) on both goods and services. IGST will be shared between the central and state government.

Let’s take the example from above to see how it would work in an IGST case:

Vijay, the trader from Pune, Maharashtra now sells products worth of Rs. 10000 to Rajesh in Tamil Nadu. The GST rate of 5% will be comprised of only 5% IGST.So Vijay will now collect from Rajesh a total of Rs. 10500, out of which Rs. 500 will go to the centre.

How are input tax credits adjusted?

Dealer A from Maharashtra sells goods worth Rs. 1000 to Dealer B in Maharashtra. Dealer B then resells these goods to trader C in Tamil Nadu for Rs. 1500. Trader C now sells the goods to user D in Tamil Nadu for Rs. 2000

The tax rate that applies to these goods is CGST=2.5%, SGST=2.5% and IGST is 2.5%+2.5% = 5%.

So, A and B are located both in Maharashtra, so CGST=2.5% and SGST=2.5% apply.B from Maharashtra is selling to C in Tamil Nadu, so IGST=5% applies.C from Tamil Nadu sells to D from Tamil Nadu, so CGST=2.5% and SGST=2.5% apply.

		Maharashtra	Tamil Nadu	Central Gov.
A to B	1000	1000 * 2.5% = 25	-	1000 * 2.5% = 25
B to C	1500	-	-	1500 * 5% = 75 (-)CGST credit = 25 (-)SGST credit = 25 NET = 25
C to D	2000	-	2000 * 2.5% = 50 (-) IGST credit balance = 25 NET = 25	2000 * 2.5% = 50 (-)IGST credit = 50 NET = 0
Total Receipt	-	25	25	50
Adjustment	-	(-) 25 Going to Centre	(+)12.5 Coming from Centre	(+) 12.5
Final	-	0	37.5	37.5

Because GST is a consumption based tax, the state where the goods are consumed (in this case Tamil Nadu) will receive the GST amount. Maharashtra, where the goods were sold, will not get any taxes. The state of Tamil Nadu and the central government will get 37.5 Rs each.

So, Maharashtra, the exporting state, will have to transfer the credit from SGST of Rs. 25 to the centre. The Central Government will transfer to the state of Tamil Nadu the amount Rs. 12.5 IGST.

GST is a completely new system and has many concepts such as composition scheme or place of supply that might intimidate many taxpayers. GST software will help many business owners feel more in control and less prone to billing mistakes.

GST Explained

What is GST bill?

GST, short for Goods and Services tax, is a new tax that will be imposed on the sale and purchase of goods and services in India. GST is meant to replace all taxes in India with a single unified tax applied to value addition instead of the total value of the product at each stage in the supply chain.

This method provides credit for the input tax paid on the purchase of goods and services, which can be offset with the tax to be paid on the supply of goods and services. As a result, this reduces the overall manufacturing cost, with the end customer paying less.

Which goods and services are exempted from GST?

With certain current taxes remaining, the following goods and services will be fully or partially exempted from the GST

What are the GST benefits for your business?

Free movement of goods: Business owners will be able to sell more in other states without having to worry about interstate transaction costs. With GST, the entry tax will be eliminated, which will save time and money spent.

What taxes does GST replace?

Currently, there are many indirect taxes that both the state and central governments are collecting on every purchase and sale.

How will GST work in practice?

The GST will follow a similar model with the one before it

What is the proposed GST rate?

GST will have a 4-tier tax structure

Why is GST being introduced in India?

One of the main reasons for GST being introduced in India is the tax burden that falls both on companies and consumers. With the current tax system, there are multiple taxes added at each stage of the supply chain, without taking credit for taxes paid at previous stages. As a result, the end cost of the product does not clearly show the actual cost of the product and how much tax was applied. This cascading structure is too complex and inefficient.

How will Inter-state transactions work in GST?

For inter-state transactions, the Centre will levy Integrated GST (IGST), which is equal to the average of the CGST and SGST rates. After applying IGST, CGST and SGST credits received from purchases, the seller will then pay the remaining IGST on the added value.

What is the exemption limit in the GST?

Businesses with turnover revenue of 20 lakhs and above will have to register and file for GST returns, with a threshold of 10 lakhs for businesses in the north east and hill states.

How will imports be handled in GST?

A combination of CGST and SGST will be applied to the import of goods and services that come to India. Tax benefits and credits will be given to the state where the imported goods and services are consumed.