In this blog we talked about GST – Introduction, CGST, SGST and IGST. This article is based on taxes subsumed under CGST SGST and IGST, Why we are getting 3 taxes – CGST SGST and IGST, How will input tax credit be adjusted between states and centre and the Difference between CGST SGST and IGST.

Taxes subsumed under CGST SGST and IGST

cgst sgst and igst

Why we are getting 3 taxes – CGST SGST and IGST ?

India is a federal country where both the Centre and the State have been assigned the powers to levy and collect taxes. Both the levels of Government need to raise resources as they have distinct constitutional responsibilities to perform. A dual GST where Centre and State simultaneously levy GST will, therefore, not only be in keeping with the Constitutional requirement of fiscal federalism but also be advantageous to all stakeholders.

Taxpayers are allowed to take input tax credit of 3 taxes being levied thus ensuring “One nation one tax”.

cgst sgst and igst

GST is a consumption based tax i.e. the tax should be received by the state in which the goods or services are consumed and not by the state in which such goods are manufactured. IGST will ensure seamless flow of input tax credit between inter-state movement of goods. One state has to deal only with the Centre government to settle the tax amounts and not with every other state, thus making the process easier.

For example: A dealer in Punjab sold goods to the consumer in Punjab worth Rs. 10,000. The GST rate is 12% comprising of CGST rate of 6% and SGST rate of 6%, in such case the dealer collects Rs. 1200 and Rs. 600 will go to the central government and Rs. 600 will go to the Punjab government.

Now, if the dealer in Punjab had sold goods to a dealer in Delhi worth Rs. 1,00,000. The GST rate is 12% comprising of CGST rate of 6% and SGST rate of 6%. In such case the dealer has to charge Rs. 12,000 as IGST. This IGST will go to the Centre.

How will input tax credits be adjusted between states and centre?

Suppose goods worth Rs. 10,000 are sold by Manufacturer A in Delhi to Dealer B in Delhi. Further, B resells them to Trader C in Punjab for Rs. 17,500. Trader C finally sells to End User D in Punjab for Rs. 30,000.

Suppose CGST= 9%, SGST=9%. Therefore, IGST=9+9=18%

Since A is selling this to B in Delhi itself, it is an intra-state sale and both CGST @9% and SGST@9% will apply.

B (Delhi) is selling to C (Punjab). Since it is an inter-state sale, IGST@18% will apply.

C (Punjab) is selling to D (Punjab). Again it is an intra-state sale and both CGST @9% and SGST@9% will apply.

cgst sgst and igst

Difference between CGST SGST and IGST

CGST SGST IGST
Meaning CGST means Central goods and service tax to replace the existing tax like service tax, excise, etc. and It is levied by central government SGST means State goods and service tax, replace the existing tax like sales tax, luxury tax, entry tax, etc. and it is levied by the state government IGST refers to the integrated goods and services tax and it is a combined form of CGST and IGST and it is levied by central government
Collection of tax Central government State government Central government
Applicability Intra-state supply Intra-state supply Inter-state supply
Registration No registration till the turnover crosses 20 lakh ( 10 lakh for north eastern states) No registration till the turnover crosses 20 Lakh ( 10 lakh for north eastern states) Registration is mandatory
Composition The dealer can use the benefit up to 75 lakh under the composition scheme The dealer can use the benefit up to 75 lakh under the composition scheme The composition scheme is not applicable in inter state supply

Conclusion

A basic difference between the three has been explained above. However, GST is so wide and complicated that there will always be some miseries unanswered.

In case you are confused about GST as a business owner, feel free to consult the GST experts at LegalRaasta. You can get comprehensive assistance on GST Registration and GST Return Filing. You can also use our GST software for doing end-to-end GST compliance.