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IGST, CGST & SGST

IGST, CGST & SGST Full Form

Last Updated 11th Aug 2020

6th August 2020 – RBI keeps Repo Rate unchanged at 4%

GST Category Full Form
IGST Integrated Goods and Services Tax
CGST Central Goods and Services Tax
SGST State Goods and Services Tax
  • IGST, CGST, and SGST are categories of Goods and Service Tax.
  • IGST applies to interstate transactions and CGST and SGST to intrastate transactions.
  • IGST is collected together and distributed to the Central and State Governments.
  • SGST and CGST are collected directly by the Central and State Governments.

What is IGST, CGST & SGST?

IGST, CGST, and SGST are categories of GST that are charged by Central and State Governments on the basis of supply and consumption. The Goods and Services Tax (GST) is a multi-staged and destination-based indirect tax, charged on the supply of goods and services. GST is multi-staged; thus, it is charged at every level of the stage of production, and being destination-based, the tax is collected from the ultimate point of consumption and not from any point of origin. Based on these features, the GST is divided into three sub-taxes, which are Integrated Goods and Services Tax (IGST), Central Goods and Services Tax (CGST), and State Goods and Services Tax (SGST).

What is Integrated Goods and Service Tax (IGST)?

The meaning of IGST or Integrated Goods and Services Tax (IGST) is the tax collected on interstate transactions when the seller and the consumer are located in different states. Further, IGST is also charged on the imports and exports of goods and services, and on supplying activities related to SEZs or Special Economic Zones. In the case of interstate tax collection, instead of separately charging taxes for the Centre and the State, the Government collects IGST, which is later divided equally. However, this adds no extra burden on the consumer's pocket since IGST is equal to the SGST and CGST clubbed together. It is collected by the Government to ensure that the tax is equally divided amongst the Centre and the State Government. IGST makes the tax process hassle-free and sorts things out for the tax collectors when there are two states involved instead of one.

Example of IGST

Asim from Haryana sold goods to Pankaj from Rajasthan, amounting to ₹ 1,00,000. If the GST charged is 12%, then this 12% is IGST. Instead of two, only one tax is charged that is handed over to the Central Government, out of which 6% is credited to the state of consumption. Thus, IGST compromises both CGST-tax to the Central and SGST-tax to the state. IGST is different because instead of direct distribution of the tax to the Centre and to state, the tax is collected in an 'integrated' manner and distributed later.

What is Central Goods and Services Tax (CGST)?

The Central Goods and Services Tax (CGST) is relevant to intrastate transactions, that is when the seller and consumer function from the same state. The CGST is implemented on goods and services to enable tax collection for the Central Government. The CGST is collected along with the SGST. Unlike IGST, in case of intrastate transactions, CGST is collected as a separate tax to be deposited to the Central Government. CGST is charged on all items that may range from household necessities to luxuries, and from manufacturing services to professional services.

What is State Goods and Services Tax (SGST)?

The meaning of SGST or State Goods and Services Tax (SGST) is a tax collected in the case of the intrastate transaction when the state of consumption and state of production are the same. The State GST, as the name implies, is a tax collection medium for the State Government. It is collected as a separate tax in the case of intrastate transactions. Similar to CGST, it is charged across all sales and purchases and other non-exempted transactions under the GST Act.

Example of CGST and SGST

Ramesh from Punjab sells goods to Manoj living in the same state worth ₹ 1,00,000. If the applicable intrastate GST on this transaction is 12%, then 6% is directly charged as CGST and another 6% as SGST. Thus, instead of an integrated tax, the tax is collected separately for the two hierarchical authority, and there is a direct-distribution of tax, instead of indirect taxation.

Why is GST split into IGST, CGST & SGST?

India works on the principles of federalism; thereby, all states are united under one entity. However, the state has its own defined powers too. Thus, both the Central and the State Governments own the predominance to collect taxes. Both these systems of power have their responsibilities assigned to their roles, which requires them to collect funds in the form of taxes.

Prior to GST, the states functioned on their own when it came to taxation, and there were various indirect taxes charged by the State Governments and the Centre. However, the GST clubbed all taxes into one. GST was implemented, keeping in view the vision of 'One Nation, One Tax,' and thus, it submerged all existing Central and State taxes into one. However, to ensure easy and hassle-free distribution of taxes in a transparent manner, the GST was split into IGST, CGST, and SGST. The split of GST into these categories united the tax structure in the country, by not depriving the State Governments of funds at the same time.

What are the taxes that got replaced by GST?

Amongst various features of GST, one of the most distinctive features is that it is comprehensive in nature. This means that it has encompassed various sources of taxes into one single tax. After its implementation, GST subsumed various taxes charged by both the Central and State governments of India. It is charged on all types of transactions like sale, purchase, transfer, imports, and other services. Various State and Central taxes that got replaced by GST are listed as follows:

  • Central excise duty
  • Service taxes
  • Custom duty
  • State-level Value Added Tax (VAT)
  • Entertainment Tax
  • Purchase Tax
  • Luxury Tax
  • Tax on Lottery, Betting, and Gambling

Situations where IGST, CGST & SGST are Applicable

IGST, CGST, and SGST are charged on all types of transactions like sale, purchase, transfer, imports, and other services. Though all these are subcategories of GST, yet the tax collecting authority is different in all three. IGST, CGST, and SGST are applicable to certain places and are not applicable at some, depending on the place of transaction, whether interstate or intrastate.

IGST is applicable to interstate transactions. Interstate transactions are those where the state of production and the state of consumption are different. This means that the buyer is located in a different state from the seller. Apart from that, CGST and SGST are pertinent to intrastate transactions. Intrastate transactions are those where the source of production and consumption are the same. In the case of intrastate transactions, a supplier collects both CGST and SGST from the consumer, which are handed over to the Central and State Governments, respectively.

CGST and SGST are collected directly as separate taxes when transactions happen in the same state. However, in interstate transactions, they are collected indirectly through IGST. This tax is later divided into the Central (CGST) and State(SGST).

How is Input Tax Credits Adjusted in GST?

Input Tax Credit is the amount of GST an individual has already paid on the inputs, that can be adjusted in the output. It is applicable to the purchase of goods and services rendered for business-enhancing transactions. Input tax credits or ITC is applicable to business activities registered under the GST ACT, which includes suppliers, manufacturers, operators, aggregators, and agents among other business owners. This can be understood with the following example:

Shaam, a manufacturer of soaps, needs to pay GST on the final product worth ₹ 450. However, he already paid a GST on the purchase of raw materials that amounted to ₹ 300. Thereby, Shaam is entitled to pay only ₹ 150 as GST.

The input tax credit can be claimed when you have the tax invoice of the purchases made; when the taxes charged have been paid; when the goods and services have been sustained, and when the concerned individual has filed GST returns. However, there are some cases where Input Tax credits are not applicable. These include GST paid on, memberships related to club and fitness centers, travel allowance, on goods purchased for personal consumption, on stolen, lost, and written off goods, etc. Further, GST on health facilities, foods, and beverages, outdoor catering, and conveyance are also not charged until they are not used for businesses.

FAQs

What are CGST and SGST?

CGST or Central Goods and Services Tax and SGST or State Goods and Services Tax are categories of GST. Both these sub-taxes are charged on intrastate transactions, on all types of sales, purchases, transfers, imports, and other services. The levying authority on CGST is the Central Government, and on SGST, it is the State Government.

How is SGST calculated?

SGST is collected by the State Government. It is applicable to all intrastate transactions along with CGST. SGST is calculated on the total value of the goods sold, clubbing it with CGST. For example, if Mr. A buys goods worth ₹ 10 Lakh on an applicable GST of 12%, then SGST and CGST will be divided at equal proportions of 6% each.

What is the full form of CGST?

The full form of CGST is Central Goods and Services Tax. It is a category of GST that is collected by the Central Government.

How do CGST, SGST, and IGST work?

CGST, SGST, and IGST work according to the place of transactions. In the case of inter-state transactions, GST is collected as IGST, which indirectly charges tax for the State and Central government clubbed together. SGST and CGST are collected in case of intrastate transactions and are both collected directly for the State and Central Government, respectively. Thus, CGST, SGST, and IGST work according to the place of transactions.

Can a hotel issue an IGST invoice?

The place of providing service in the case of hotels is the same place where the hotel is located. Thus all transactions are intrastate. Therefore hotels can issue SGST and CGST invoices and not IGST invoices.

What is the maximum rate of IGST

The maximum rate applicable under IGST cannot exceed 40%. However, it varies across products like daily needs and household necessities and luxurious items. For example, a maximum of 18% can be charged on medicines, and 28% can be charged on air-conditioners.

What is the maximum rate of SGST and CGST?

GST is collected across five tax slabs that falls in 0%, 5%, 12%, 18% and 28%. However, the charges across products and SGST and CGST cannot exceed 20%.

Who collects SGST?

SGST or State Goods and Services Tax is collected by the State Government of the State where the consumption takes place.

Who collects CGST?

CGST or Central Goods and Services Tax is collected by the Central Government.

Who collects IGST?

IGST is collected by the Central Government, who ultimately hands over the required revenue to the State Government.


Our News - Aug 2020
  • 2020-06-05 : ₹36,400 crores released as GST compensation to States
    The central government released ₹36,400 crores to states as their pending Goods and Services Tax compensation. The payment is for the period of December 2019 to February 2020. The finance ministry released the fund to provide impetus to the state amid the COVID 19 and subsequent lockdown.
  • 2020-05-13 : GST Return filing date extended
    Centre extended the deadline for GST filing for the month of March, April and May 2020 and composition returns will be done under GST June 30. Further, the companies with less than Rs 5 crore turnover will not have to pay interest, late fee or penalty. For bigger companies, late fee and penalty will not apply and only interest at a reduced rate of 9% will be charged. The move was taken to provide relief to businesses grappling with the economic impact of COVID 19.
  • 2020-03-25 : GST returns filing date extended
    Finance Minister extended the filing of GST returns for March, April and May 2020 to composition returns under GST 30 June 2020. Further, companies that have less than Rs 5 crores turnover will not have to pay interest, late fee or penalty. Whereas for bigger companies, only interest at a reduced rate of 9% will be levied.
  • 2020-02-10 : GST council to revise rate yearly
    Finance Minister announced that the GST council will make changes in GST rates a yearly affair. The decision to move away from the frequent tweaks and changes in rates was taken to remove uncertainty for Government and business.
  • 2020-02-07 : Central and State tax officers to share taxpayers information
    The government has decided that central and state tax officers will share GST information to check its evasion. Further, it was also decided that GST network, the Central Board of Direct Taxes and the Central Board of Indirect Taxes and Customs will share data quarterly for early identification and checking of fraud cases.
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