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Writer's pictureCA Vishnu Agarwal

CGST, SGST, and IGST: Unraveling the GST Triad in India

Updated: Jun 23



The Goods and Services Tax (GST) in India is a comprehensive indirect tax system that has streamlined the taxation process. However, understanding the different components of GST, namely CGST, SGST, and IGST, can be confusing for many. This blog post aims to simplify these terms and shed light on their distinct roles and implications.


Understanding the Basics of GST:


Before we dive into the differences between CGST, SGST, and IGST, let's revisit the basics of GST. It is a destination-based tax levied on the value addition at every stage of the supply chain. It has replaced multiple indirect taxes, creating a unified national market and simplifying tax administration.


The Triad of GST:


CGST (Central Goods and Services Tax):

  • Levied by the central government on intra-state supply of goods and services.

  • Collected by the central government and credited to the central government's account.

  • The CGST rate is half of the total GST rate applicable to the goods or services. SGST (State Goods and Services Tax):

  • Levied by the state government on intra-state supply of goods and services.

  • Collected by the state government and credited to the state government's account.

  • The SGST rate is also half of the total GST rate applicable to the goods or services. IGST (Integrated Goods and Services Tax):

  • Levied by the central government on inter-state supply of goods and services and imports.

  • Collected by the central government but later apportioned between the central and state governments based on a pre-determined formula.

  • The IGST rate is equal to the total GST rate applicable to the goods or services.


Illustrative Example:


Let's consider a scenario where a product is sold within a state (intra-state transaction) and the total GST rate applicable is 18%. In this case, 9% CGST will be collected by the central government, and 9% SGST will be collected by the state government.


Now, if the same product is sold from one state to another (inter-state transaction), then 18% IGST will be collected by the central government. This amount will be later divided between the central and the consuming state governments.


Key Points to Remember:

  • Intra-State Transactions: CGST + SGST = Total GST Rate

  • Inter-State Transactions and Imports: IGST = Total GST Rate

  • Input Tax Credit (ITC): Businesses can claim ITC on the GST paid on their purchases, which can be used to offset their GST liability on outward supplies.


Impact on Businesses and Consumers:


The implementation of GST has brought about significant changes in the way businesses operate and consumers pay taxes.

  • For businesses, GST has simplified the tax structure, reduced compliance costs, and eliminated cascading taxes. However, it has also increased the administrative burden due to the requirement of filing multiple returns and maintaining detailed records.

  • For consumers, GST has generally led to a reduction in the overall tax burden due to the elimination of cascading effects. However, it has also resulted in price fluctuations for some goods and services due to changes in tax rates.


Conclusion:

Understanding the difference between CGST, SGST, and IGST is crucial for businesses and consumers to navigate the GST regime in India. While the system has brought about significant reforms, it is essential to stay updated with the latest rules and regulations to ensure compliance and reap the benefits of this comprehensive tax structure.

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