GST ushered in a transformation in the realm of indirect taxation in this country. Before this, there was a myriad of state and central taxes that made compliance by firms cumbersome and apparently lengthy. Today, the types of GST in India are well-defined and aim at bringing order, transparency, and uniformity to the entire taxation mechanism. Whether you are an entrepreneur, a student, or anyone looking for a far better understanding of the functioning of the system of taxation, knowing about these 4 types of GST is a good starting point.
What is GST, and why do we have different types?
GST is a single indirect tax levied on the supply of goods and/or services. It took the place of many taxes, including excise duty, service tax, and VAT. India follows a dual GST model, where both the Central Government and State Governments have the power to levy a tax on transactions, depending upon the nature of these transactions.
This is why there are different types of GSTs levied in India: each type is designed to handle a certain nature of the transaction, whether it is intra-state, inter-state, or in a Union Territory.
What are the 4 Types of GST in India?
There are four major types of GST in India, all of which have a very vital role in the taxation system.
1. What is CGST?
CGST means Central Goods and Services Tax. It is the tax levied by the Central Government when one particular state's residents sell goods and services amongst them. In other words, if any business entity from Maharashtra sells its product to a consumer in Maharashtra, then it will attract CGST.
Revenue collected through CGST accrues to the Central Government.
This type of GST ensures that the Centre gets its share of tax from intra-state transactions.
2. What is SGST?
SGST means State Goods and Services Tax. It is charged along with CGST on intra-state transactions. Using the same example of a sale within Maharashtra, there would also be a levy of SGST.
The difference is that the SGST portion goes to the state government.
So, if someone asks, the most straightforward response to the question "What is SGST?" is that it is the tax that the state collects on sales that take place inside that state.
CGST and SGST are charged together in case of intra-state supplies.
3. What is IGST?
IGST means Integrated Goods and Services Tax. It is imposed on inter-state supplies. This means that in cases where goods or services move from one state to another, the IGST is applied.
For instance, if a business in Karnataka sells to a customer in Delhi, then IGST will be charged.
In IGST, the Central Government collects the tax and then distributes an appropriate share to the destination state. This system helps in maintaining a smooth flow of tax credit across states.
IGST is always the response when someone asks, "What kind of GST is applicable for inter-state trade?"
4. What is UTGST?
The Union Territory Goods and Services Tax is known as UTGST. This would apply to Union Territories that have no legislature, such as Chandigarh, Lakshadweep, and the Andaman and Nicobar Islands.
UTGST works just like SGST, except that it's for Union Territories and not for states. It is charged along with CGST on intra-UT transactions.
So, when asking yourself, "What is UTGST?", imagine it as the GST version for Union Territories.
Summary of Types of GST in India
Here is a simple and quick method for remembering:
- Intra-state supply in a state: CGST + SGST
- Intra-state supply in a Union Territory: CGST + UTGST
- Inter-state supply or imports: IGST
This system assures proper tax collection and equal sharing of revenues between governments.
Final Thoughts
The varied concepts of GST in India assist businesses with compliance and financial planning. Each type of GST, whether it is CGST, SGST, IGST, or UTGST, contributes in a different way to maintaining an organized and flexible tax system. If you are dealing with any kind of billing, accounting, or taxation, you surely need to know how many types of GST in India are there and when they apply.
