What is GST? Meaning and significance

Enacted as a reform to transform the taxation system in India, the Goods and Service Tax (GST) is a comprehensive indirect tax. Previously, a complex web of state and central taxes, such as VAT, excise duty, and service tax, operated alongside the GST, resulting in double taxation and a significant compliance burden. On July 1, 2017, the introduction of the GST revolutionized indirect taxation by incorporating nearly all levies on the sale of goods and services.

• GST Full Form: Goods and Services Tax.
  
  
• What is GST in India?
  GST is a multi-stage, destination-based tax applicable on every value addition and levied on all goods and services except essential items like alcohol and petroleum.

Why is GST important?

GST is not only a tax reform but a move toward higher transparency, better tax collection, and compliance. Here’s why GST is essential:

• Simplifies compliance: Businesses now deal with a single tax system instead of multiple state and central taxes.
• Promotes transparency: There is no doubt that GST invoices clearly show how much tax goes to the state and central governments.
• Boosts the economy: GST creates a unified market to encourage businesses to do business across states.

The Four Types of GST in India: IGST, SGST, CGST, and UTGST

India follows a dual GST model where the central and state governments both levy taxes on the same transaction. Depending on the type of transaction and its location, the tax falls into four categories:

1. CGST (Central Goods and Services Tax)
2. SGST (State Goods and Services Tax)
3. IGST (Integrated Goods and Services Tax)
4. UTGST (Union Territory Goods and Services Tax)

Each type has its own distinct purpose, ensuring the smooth distribution of tax revenue between the Central Government, State Governments, and Union Territories.

1. CGST (Central Goods and Services Tax):

Meaning: CGST is Central Goods and Services Tax. Goods and Service Tax (GST) is one of the three types of GST charged on the supply of goods and services in India. Intrastate transactions mean the supply of goods or services within the same state. The design aims to prevent the cascading effect of taxation.

Applicability:

• Intra-state Transactions: CGST is applicable only to transactions within a state. Additionally, if your supplies originate from Maharashtra, you will be subject to CGST.
• Concurrent Levy: The same supply of goods or services is charged with both CGST and SGCT (State Goods & Services Tax) at once. Moreover, the central and state governments divide half of all revenues raised between them equally when they tax interstate sales at identical rates.
• GST Rate: Different CGST Rates for different Goods and services. The standard rates are 5%, 12%, 18%, and 28%, which align with the larger GST structure.
• Tax Credit: Companies can deduct the input tax credit of CGST they've paid on their purchases from their output liability during sales, which lessens their overall burden.
  
  

2. The State Goods & Services Tax (SGST):

SGST stand for State Goods and Services Tax: In GST it is a tax levied by the state government on intrastate transactions of goods and services.

In India, the dual GST structure consists of an SGST (State Goods and Services Tax) and CGST (Central Goods and Services Tax). The major aim of SGST is to prevent the cascading effect of taxes and smooth the flow of credit across the supply chain.

Applicability: SGST will apply in case of:

• Intra-State Transactions: SGST, the state GST is collected on supply of goods and services in a single state. For example, SGST applies to sellers selling goods from Maharashtra and buyer from other states in Maharastra itself.
• Registration: Most of the states require the businesses with a turnover over the threshold limit (₹20 lakh for most states, ₹10 lakh for special category states) to register themselves under SGST.
• Compliance: A registered taxpayer will have to submit the SGST and CGST returns periodically as per provisions of GST law.
  
  

3. IGST (Integrated Goods and Services Tax):

IGST, or Integrated Goods and Services Tax, is a component of the Goods and Services Tax (GST) system in India. The central government levies it on imports and on inter-state transactions (sales between different states). This tax mechanism facilitates the smooth flow of tax credits across state borders as well as simplifies the compliance requirements for the businesses that engage in interstate trade.

Applicability of IGST:

• Inter-state transactions: Transactions where goods or services are sold from one state to another.
• Imports and Exports: Goods and services brought into or sent out of the country also attract IGST.
• Supplies to SEZs (Special Economic Zones): IGST applies to sales to SEZ units, which are considered interstate supplies.

4. UTGST (Union Territory Goods and Services Tax):

Meaning: Union Territories (UTs), which require compensation for their own revenue requirements, are subject to UTGST, while SGST does not apply to them.

Applicability: Collected in the Union Territories of Chandigarh, Lakshadweep, and Andaman and Nicobar Islands.

For instance, if a sale occurs within Chandigarh, UTGST will be applied instead of SGST. The distinction between IGST, SGST, CGST, and UTGST is as follows:

Difference between IGST, SGST, CGST, UTGST:

How is IGST different from CGST and SGST?

IGST is one of the three legs of Goods and Services Tax (GST) in India and has a different role than CGST (Central Goods and Services Tax ) and SGST (State Goods and Services Tax). Here are the key differences:

FAQs

1. What are the four kinds of GST?
   In India, there are four types of GST: IGST, CGST, SGST, and UTGST.
2. What is the full name of GST?
   Goods and Service Tax.
3. What makes GST beneficial for a business?
   GSTs are simple; they don’t have cascading policies, and they are more accurate in tax collection.
4. What is the IGST full form?
   The abbreviation for integrated goods and services tax is IGST.
5. What is the difference between CGST and SGST?
   The central government collects CGST and the state government collects SGST, both for intrastate transactions.
6. What are the five types of GST rates?
   GST rates are at the levels of 0%, 5%, 12%, 18%, and 28% depending on goods or service categories.
7. How does IGST differ from CGST and SGST?
   The Central Government collects IGST for interstate transactions, while CGST and SGST are applicable for intrastate transactions.
8. What does happen if we ship from state X to state Y?
   When selling goods between states, we apply IGST. The supplier collects IGST, deposits it with the Central Government, and then distributes the revenue between the origin and destination states. The system helps reduce the need for multiple tax payments by unclogging interstate commerce.
9. What formula calculates IGST?
   In the case of interstate transactions, IGST = CGST + SGST (i.e., it is the total or sum of two taxes).
10. What taxes did GST replace?
    The new indirect tax was GST which replaced a number of indirect taxes.

At the Central Level:

• Service Tax
• Excise Duty
• Additional Customs Duties

At the State Level:

• VAT (Value Added Tax)
• Entertainment Tax
• Entry Tax
• Luxury Tax