Since the Goods and Services Tax (usually called GST Tax) was adopted in 2017, there has been a protracted confusion in the minds of taxpayers about the technicalities of the GST regime and about the terms associated.
One such topic of confusion is the difference between CGST, SGST, and IGST.
What are CGST, SGST, and IGST and what are the differences between them?
Let us understand through this article.
Types of GST
The Goods and Services Tax has three major components: CGST, SGST, and IGST.
In addition, there is also a UTGST applicable in the case of Union Territories.
All the components of GST have a separate act governing them due to India being a federal country, and a combination of all these laws is usually referred to as the GST law.
Thus, there are Central GST acts to levy CGST and IGST, while states have their own state GST acts.
For example, the state of West Bengal has the West Bengal Goods and Services Tax Act, 2017 and Maharashtra has the Maharashtra Goods and Services Tax Act, 2017.
CGST and its applicability
CGST stands for Central Goods and Services Tax. It is levied on intra-state transactions of goods and services.
It is governed by the Central Goods and Services Tax Act (CGST Act) and the responsibility to collect taxes is with the Central Government.
The tax revenue from the GST collected on an intrastate transaction has the components of CGST and SGST and is divided equally between the Central and state governments.
It subsumes the erstwhile various indirect taxes levied by the Central government like Central Excise duty, Central Surcharges, Service Tax, etc.
Example of CGST
For instance, A from Rajasthan buys goods from B in Rajasthan for INR 50,000. If the supposed GST rate on the intra-state transaction is 12 per cent, the component of CGST in the overall GST paid by A will be 6% (half of 12%).
SGST and its applicability
SGST stands for State Goods and Services Tax. Similar to CGST, SGST is also levied on intra-state transactions of goods in the state of consumption.
It is governed by the SGST Act of the respective state governments who are also the tax levying authority.
It subsumes erstwhile State taxes like the Sales tax, Luxury tax, Value Added Tax, Entry tax, Entertainment Tax, etc.
Example of SGST
For instance, P from Haryana buys goods from R in Haryana for INR 50,000 with a GST rate of 12 per cent. In this case, P would pay an amount of INR 6,000 as the GST, which would include an SGST component of INR 3,000.
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IGST and its applicability
IGST stands for Integrated Goods and Services Tax. It is a tax levied on interstate transactions of goods and services. It subsumed the earlier Central Sales Tax which was levied by the central government on the interstate transactions of goods.
IGST is collected by the Central government and distributed between the central government and the state government equally.
Usually, the IGST rate of goods and services is the total of the CGST and SGST rate (more or less).
Example of IGST
For instance, A from Rajasthan buys goods from B from Maharashtra worth INR 50,000. Let the applicable rate on the inter-state transaction be 12 per cent.
Thus, A would pay an IGST of INR 6,000, which would also be the aggregate of CGST and SGST had it been an intrastate supply of goods/services.
Read: What are the 4 types of GST?
Why is the GST split into CGST, SGST, and IGST?
The division of GST into various types: CGST, SGST, and IGST is due to the federal nature of the country with both the state governments and the central government having the power to levy taxes.
Thus, to preserve the federal feature of the state, the Goods and Services Tax regime is split into CGST, SGST, UTGST, and IGST.
The various components of the taxation system allow cross-sectional usage of input tax credits, which ensures that the destination-based tax system works efficiently.
Difference between CGST, SGST, IGST
The main difference between CGST, SGST, and IGST is as follows:
| Particulars | CGST | SGST | IGST |
| Full Form | CGST stands for Central Goods and Services Tax | SGST stands for State Goods and Services Tax | IGST stands for Integrated Goods and Services Tax |
| Applicability | Intra-state transactions | Intra-state transactions | Inter-state transactions |
| Authority | It is levied by the Central Government | It is levied by the State Government | It is levied by the Central Government |
| Input Tax Credit | Can be used to pay CGST and IGST liabilities. Credits of CGST cannot be used for SGST payments. | Can be used to pay SGST and IGST liabilities. Credits of SGST cannot be used for CGST payments. | Credit are first used to pay IGST liabilities, then CGST, and then SGST liabilities |
| Revenue sharing | The revenue from CGST goes to the Central Government. | The revenue from SGST goes to the state government. | The revenue from IGST is divided equally between the central and state governments. |
| Taxes subsumed | Central Excise Duty, Service Tax, etc. | Sales Tax, Luxury Tax, Entertainment Tax, etc. | Central Sales Tax which was earlier levied on interstate transactions |
Conclusion
Several indirect taxes levied by both the Centre and state governments were subsumed by the Goods and Services Tax to achieve the ideal of ‘One Nation One Tax’.
However, due to the power to levy taxes being conferred by the Constitution to state governments as well, the tax regime has allowed for a dual structure of the GST with the states having the power to levy SGST and the centre having the power to levy CGST and IGST.
In this blog, we elucidated the difference between CGST, SGST, and IGST.
In brief, while CGST and SGST are applicable to intrastate transactions, IGST is applicable to interstate transactions apart from the difference in the authority levying the tax.
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FAQs
How does IGST adjust with CGST and SGST?
IGST input tax credit can be used to offset liabilities arising in CGST and SGST. However, the taxpayer must first use the IGST credits to offset IGST liabilities. Following this, the taxpayer can use the credits to offset CGST liabilities, post which the SGST liability can be offset.
What is the percentage of IGST?
The applicable tax rates approved by the GST Council are: 0% (nil-rated), 5%, 12%, 18%, and 28% for all types of GST, including IGST.
Apart from this standard tax rate slab, there also exist various other tax rates like 0.25% IGST on semiprecious stones, 3% IGST on Silver filigree work, etc.
Who collects SGST?
The state government levies SGST and the responsibility to collect tax is also with the state government. It is only applicable to the intra-state supply of goods. SGST, when combined with CGST constitutes the GST paid by a taxpayer on intrastate transactions.
How is GST divided between the Centre and the state?
The share of tax revenue depends upon the type of type of transaction. In an interstate supply of goods/interstate transaction, the Centre collects IGST, and the revenue sharing is such that both the Centre and the state government realise an equal amount from it.
Can we transfer IGST to SGST?
Yes, we can transfer IGST input credit to offset SGST liability but there is a precedence one has to follow in accordance with the IGST Act.
IGST credit must first be used to offset the IGST liability before utilising it to offset SGST and CGST liabilities.
Before IGST credits can be utilised for SGST liability, the taxpayer has to utilise it for CGST payment.
What are the 4 types of GST?
The four types of GST are:
CGST: It is levied and collected by the Central government.
SGST: It is levied by the state government.
UTGST: It is levied and collected by the Union Territory government.
IGST: It is levied and collected by the Central government.
In which condition is IGST charged?
IGST is charged on interstate transactions. It is also charged on imports and exports of goods since both imports and exports are treated as interstate supply in the GST taxation system.
However, exports are usually treated as zero-rated supplies which allows the exporter to claim input tax credits on the supply.
