1 July 2017 marks the day when the government made the landmark decision of introducing GST as the main indirect tax regime of India. While understanding the taxation system can be complicated for many one of the most crucial aspects that everyone should know about are the different types of GST. Do note that many processes like handling letter of authorization for GST are the same for all these types. However, for now, let’s learn about the different gst types.
- SGST
SGST is short for state goods and services tax. If the GST is collected by the state government then it is known as SGST. This type of GST is applied to all transactions within the geographical boundaries of the concerned state. As opposed to pre-GST era when there were numerous state taxes like VAT, entertainment tax or the state sales tax, now only SGST is valid and all the other types of state taxes have become invalid and inapplicable. Therefore except for alcohol, SGST is levied on every good and service supplied within the state. Additionally, the SGST is applied to the item’s transactional value only which prevents the cascading of taxes. This amount is paid by the buyer.
The details regarding the features and various aspects of SGST may vary from state to state. This is because since in India we practice cooperative federalism, every state government has their individual acts. However, in order to ensure overall the principle of one tax in one nation, classifications of goods and services, taxable events etc are the same across the country regardless of which state you are in.
- CGST
CGST is short for central goods and services tax and is a replacement for all the taxes that previously existed under the central government. Some of the taxes that CGST has replaced include central excise duty, central sales tax, services tax, excise duty levied under the textiles and textile products, additional duties of customs and additional duties of excise. The CGST rates vary depending on the goods being sold. For instance, the CGST on computer products and processed foods is 6 per cent whereas on motorcycles, refrigerators and luxury items the rate is 14 per cent. While these percentages may seem high but the rates on household items like tea, coffee, edible oil, sugar, and sweets is extremely low at 2.5%
- IGST
IGST is short for integrated goods and services tax. It is levied whenever there is an interstate transaction of goods and services involved. This means whenever the goods and services move between two states then IGST would be levied instead of SGST. IGST is also levied whenever there is an import or export of goods and services. The tax levied under IGST is collected by the central government as per the IGST act. One thing often misunderstood is that the tax collected under IGST goes to the consumer state and not the manufacturing state. This is because the tax is incurred by the buyer who lives in the consumer state. Just like other types of GST, the IGST rate also varies with products. For luxury items, the percentage is as high as 28 per cent and for household products, it is as low as 5 per cent.
- UTGST
UTGST is one of the most common types of GST that often confuses people. UTGST or union territory goods and services tax is applicable whenever there is a transaction of goods and services specified in the union territories. Hence it is levied whenever there is a supply of products in Lakshadweep, Dadra and Nagar Haveli, Andaman and Nicobar islands and Chandigarh. Hence as you can see UTGST doesn’t apply to all union territories but only where there is no legislature.