What is SGST, CGST, IGST?

What is SGST, CGST, IGST: The Indian Goods and Services Tax (GST) system is a game-changing reform that unified multiple indirect taxes into a single, comprehensive levy. To ensure a harmonious tax structure while respecting the fiscal independence of both the Central and State governments, the GST framework is segmented into three primary components: SGST (State Goods and Services Tax), CGST (Central Goods and Services Tax), and IGST (Integrated Goods and Services Tax).

Understanding What Is SGST, CGST, IGST is essential for every business and consumer in the country. These three pillars dictate how taxes are collected and distributed based on the nature of a transaction. 

What is CGST (Central Goods and Services Tax)?

CGST stands for Central Goods and Services Tax. It is one of the two components of the Goods and Services Tax levied on transactions that occur within a single state or union territory, known as intra-state supply.

• Governing Law: CGST is governed by the Central Goods and Services Tax Act, 2017.

• Levied By: The Central Government.

• Applicability: It is charged on all intra-state supplies of goods and services, i.e., when both the supplier and the consumer are located in the same state.

• Revenue: The entire revenue collected under the CGST head goes to the Central Government.

In an intra-state transaction, the applicable total GST rate is always split equally between CGST and SGST (or UTGST). For instance, if the total GST rate on a product is 18%, it will be levied as 9% CGST and 9% SGST.

What is SGST (State Goods and Services Tax)?

SGST meaning is State Goods and Services Tax. SGST is the complementary tax to CGST and is levied by the State Government on the same intra-state supplies of goods and services.

• Governing Law: SGST is governed by the respective State Goods and Services Tax Act, 2017, for each state.

• Levied By: The respective State Government.

• Applicability: SGST applies simultaneously with CGST on all transactions that take place within the boundaries of a single state.

• Revenue: The revenue generated through SGST is claimed entirely by the state government where the supply is made.

SGST replaced several older state-level taxes, such as Value Added Tax (VAT), entertainment tax, and luxury tax, thereby simplifying the tax structure at the state level. A similar levy, the Union Territory Goods and Services Tax (UTGST), is applied in place of SGST in Union Territories that do not have their own legislature (e.g., Andaman and Nicobar Islands, Chandigarh, etc.).

What is IGST (Integrated Goods and Services Tax)?

IGST meaning is Integrated Goods and Services Tax. This is a key component designed to manage and streamline taxation on transactions that cross state borders.

• Governing Law: IGST is governed by the Integrated Goods and Services Tax Act, 2017.

• Levied By: The Central Government.

• Applicability: IGST is applicable on:

• Inter-state supply of goods or services (transactions between two different states or Union Territories).

• Imports of goods and services into India.

• Exports of goods and services out of India (exports are generally zero-rated).

• Revenue: The Central Government collects the IGST. Crucially, the IGST rate is equal to the sum of the CGST rate and the SGST rate. The revenue collected is later shared between the Central Government and the state where the goods or services are consumed (destination-based tax).

The IGST mechanism ensures that the Input Tax Credit (ITC) chain remains unbroken and that the tax ultimately accrues to the state where the consumption happens, maintaining the "One Nation, One Tax" principle.

Differences Between CGST, SGST, and IGST

The distinction between these three taxes is based on the location of the supplier and the place of supply, determining whether the transaction is an intra-state or an inter-state supply.

When is CGST, SGST, and IGST Applicable?

The application of CGST, SGST, or IGST is determined by one simple rule: the location of the seller (supplier) and the location of the buyer (place of supply).

Intra-State Supply (CGST + SGST/UTGST)

When the location of the supplier and the place of supply are in the same state or Union Territory, the transaction is classified as an Intra-State supply.

• Taxes Applied: Both CGST and SGST (or UTGST) are levied.

• Example: A manufacturer in Pune, Maharashtra, sells goods to a retailer in Mumbai, Maharashtra. The taxes will be CGST + SGST.

Inter-State Supply (IGST)

When the location of the supplier and the place of supply are in different states or Union Territories, the transaction is classified as an Inter-State supply.

• Taxes Applied: Only IGST is levied, which includes both the Central and State components.

• Example: A supplier in Delhi sells goods to a customer in Jaipur, Rajasthan. The only tax levied on this sale will be IGST.

Revenue Distribution Mechanism

One of the fundamental objectives of the Goods and Services Tax was to maintain the revenue flow for both the Central and State governments. This is achieved through the distinct collection mechanisms of CGST, SGST, and IGST:

• CGST and SGST: For intra-state transactions, the two taxes are levied simultaneously. The CGST portion is collected by the Central Government, and the SGST portion is collected by the respective State Government.

• IGST: For inter-state transactions, the Central Government collects the entire IGST amount. Since GST is a destination-based tax, this revenue is later shared with the state where the goods or services were ultimately consumed. This ensures the consuming state receives its due share of the tax revenue, which was a core reform of the GST system.