In India’s tax system, the Goods and Services Tax (GST) stands as a transformative dynamism, restructuring value-added tax levied to the nation’s financial architecture since July 1, 2017.
This revolutionary tax system replaced a complicated indirect tax and aimed to create a unified market by bringing together the various economic spheres under one umbrella. However, Understanding the types of Goods and Services Tax can be a tough task, especially considering the various types that exist within the system.
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What is Goods and Services Tax?
Goods and Services Tax is a unified tax system implemented in India since July 1, 2017. It replaced a complex array of indirect taxes and aims to streamline the taxation process. Under GST, goods and services are taxed at various rates based on their nature and classification. It operates on a dual model, with both central and state governments levying taxes concurrently.
GST has simplified tax compliance for businesses and reduced cascading effects, leading to greater efficiency in the tax system.
What are the types of goods and services tax?
There are four types of goods and services tax in India;
- Integrated Goods and Services Tax
- State Goods and Services Tax
- Central Goods and Services Tax
- Union Territory Goods and Services Tax
Let’s dive in detail to those different types of goods and services tax in India.
What is Integrated Goods and Services Tax?
Under the GST framework, taxes on imports and exports as well as interstate (between two states) supplies of goods and / or services are referred to as the Integrated Goods and Services Tax (IGST).
The IGST Act regulates the IGST. The Central Government oversees collecting taxes under the IGST. The Central Government distributes the taxes among the individual states after they have been collected.
For example, as this is an interstate transaction, IGST will be charged if a merchant from West Bengal sells products to a consumer in Karnataka for INR 5,000. The seller will charge INR 5,900 for the products if the rate of GST on them is 18%. The IGST collected is INR 900 and it will be going to the Central Government.
What is State Goods and Services Tax?
The intrastate (inside state) transactions are subject to the State Goods and Services Tax (SGST). When products or services are supplied within the state, both State and Central GST are applicable.
But the state imposes the State GST, which is SGST, on products and services that are bought or sold within the state. Only the corresponding state government may claim the money obtained through SGST.
For example: Let’s assume, where a trader from Maharashtra sells goods to a customer in Gujarat worth INR 8,000. In this situation, the applicable GST will be IGST, as it involves transactions between two different states. Assuming the GST rate is 12%, the IGST would also be levied at the same rate. The total GST amount to be charged by the trader would be INR 960 (12% of INR 8,000).
Unlike the intrastate transaction, where CGST and SGST are applicable separately, in this case, the entire IGST amount goes to the central government.
What is Central Goods and Services Tax?
Similar to SGST, Central Goods and Services Tax (CGST) is a GST regime tax that is imposed on intra state (inside the same state) transactions. The CGST Act is what governs the CGST. The Central Government is in charge of collecting the money received from the CGST.
What is Union Territory Goods and Services Tax?
The SGST, which is imposed on the delivery of goods and services in India’s Union Territories, is matched by the Union Territory Goods and Services Tax (UTGST). The supply of goods and / or services in Chandigarh, Daman Diu, Dadra and Nagar Haveli, Lakshadweep, and the Andaman & Nicobar Islands is subject to the UTGST.
The UTGST Act regulates the UTGST. The Union Territory government is responsible for collecting the UTGST income. In Union Territories, the SGST is replaced by the UTGST. Thats why UTGST was imposed in addition to CGST.
Difference between types of goods and services tax in India?
Various types of goods and services tax have their own differences which are summarized in the table below.
| Types of Goods and Services Tax | Who is collecting? | Priority of Tax Credit | Applicable transactions (Goods and Services) | Benefiting authority | Rate |
|---|---|---|---|---|---|
| SGST | State Government | SGST, IGST | Intra-state transactions/transactions within a single state | State Government | 0-28% (May vary across states) |
| UGST | Union Territory Government | UTGST, IGST | Transaction within a Union Territory | Union Territory Government | 0-28% |
| CGST | Central Government | CGST, IGST | Intra-state transactions/transactions within a single state | Central Government | 0-28% |
| IGST | Central Government | IGST, CGST, SGST | Inter-state transactions between two states or a state and a Union Territory | State Government and Central Government | 0-28% |
Who needs to pay the goods and services tax?
- Every Individual, Company, partnership, limited liability partnership (LLP), and other organization that offers goods or services is required to pay GST.
- In the majority of states, businesses that generate more than INR 40 lakhs in income annually from items or INR 20 lakhs from services are required to pay GST. For certain state and North Eastern state categories, the threshold limit is INR 10 lakhs.
- GST Registration is required for anyone manufacturing, selling, or distributing goods and services.
- E-commerce businesses that permit the sale of goods or services via their platform are also liable to pay GST.
- Buyer of the goods or services, not the vendor, is now in charge of paying the GST under the reverse charge system.
Is there any exemptions for GST?
In India, certain goods are exempt from paying GST, including essential food items including fresh fruits and vegetables, cereals, meat, fish, milk, eggs, healthcare, and educational services. A few types of books, government services, and agricultural goods are exempt from paying GST.
Conclusion
India’s GST transformed the financial system by replacing complex indirect taxes with a unified structure. The four types of goods and services tax; IGST, SGST, CGST & UTGST—govern transactions at different levels, underscoring the importance for businesses to grasp these distinctions.
Central Government oversight places IGST in charge of interstate transactions, while SGST and CGST manage intrastate dealings. UTGST aligns with SGST in Union Territories, demanding clarity for businesses to comply with tax regulations.
Tax rates, ranging from 0% to 28%, vary across states and Union Territories, with each GST category contributing to both central and state revenues through a decentralized approach.
Despite of complexities, 24efiling represents a significant shift to your tax framework.
FAQs
1. How has GST simplified tax procedures?
GST has simplified the taxation system by replacing numerous indirect taxes with a cohesive framework. This transition fosters transparency, efficiency, and the creation of a unified national market, thereby facilitating easier compliance with tax regulations for businesses.
2. In what ways does GST Registration enhance compliance for businesses?
GST streamlines compliance for businesses by introducing a unified tax system, eliminating the necessity to navigate through multiple indirect taxes.
3. What factors determine GST rates?
The GST Council plays a pivotal role in setting GST rates, taking into account factors such as the nature of goods or services, economic conditions, and revenue necessities.
4. What are the types of Goods and Services Tax in India?
The different types of Goods and Services Tax in India, say; IGST, SGST, CGST and UTGST.
5. What are the 5 types of GST rate?
Regular taxpayers face GST slabs of 0% (nil-rated), 5%, 12%, 18%, and 28%. Some less common rates include 3% and 0.25%. Composition taxable persons pay lower rates like 1.5%, 5%, or 6% on their turnover.
6. How many types of goods and services tax are there in the tally?
In Tally, there are four types of Goods and Services Tax ledgers: IGST, CGST, SGST, and Cess. Tally automatically manages tax rates, as well as Input GST and GST liability for these ledgers.
