Good and Service Tax (GST) is an Indirect tax which came into effect on July 1, 2017. GST was coined in to replace the hassle of multiple taxations in India under the slogan, “One Nation, One Tax”. Prior to the GST regime, a taxpayer was required to file forms such as Central Excise, Service Tax and State VAT etc.
Although GST is structured as One-multistage based taxation system, it is categorized into CGST, SGST or IGST, based on whether the transaction is Intra-State or Inter-State.
Applicability of CGST, SGST and IGST
To determine applicability of Central Goods & Services Tax (CGST), State Goods & Services Tax (SGST) or Integrated Goods & Services Tax (IGST), it is crucial to know if the transaction is an Intra State or an Inter-State supply.
- Intra-State Supply: When the location of the supplier and the place of the supply or the location of the buyer are in the same state, it is known as the Intra-state transaction. For the intra-state transaction, the seller is required to collect both CGST and SGST from the recipient, which is deposited to the central and state government respectively.
- Inter-State supply: When the location of the supplier and the place of the supply or the location of the buyer are in different states, it is known as the Inter-state transaction. Moreover, in case of import or export of goods/services is made by the SEZ unit, the transaction is considered as Inter-state. For the inter-state transaction, the seller is required to collect IGST
Need of splitting GST into CGST, SGST and IGST
In India, the Central Government, as well as the State Government, have the authority to levy and collect the tax. Furthermore, both the Governments have their own distinct responsibilities to perform, as per the Constitution, for which the revenue generated through tax is necessary.
Thus, to ensure a smoother and co-operative revenue generation, the three types of tax structure i.e.
CGST: Under GST, CGST is a tax levied on Intra State supplies of both goods and services by the Central Government and will be governed by the CGST Act.
SGST: Under GST, SGST is a tax levied on Intra State supplies of both goods and services by the State Government and will be governed by the SGST Act.
Note: Any tax liability obtained under SGST can be set off against SGST or IGST input tax credit only.
IGST: Under GST, IGST is a tax levied on all Inter-State supplies of goods and/or services and will be governed by the IGST Act. IGST will be applicable on any supply of goods and/or services in both cases of import into India and export from India.
Note: Under IGST,
- Exports would be zero-rated.
- The tax will be shared between the Central and State Government.
Have been implemented.
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