GST simplified: Breakdown of CGST, SGST, IGST & UGST

Introduction

Goods and Services Tax (GST) is a single, unified tax system in India that replaced multiple indirect taxes like VAT, service tax, and excise duty. GST is designed to simplify tax compliance, eliminate the cascading effect of taxes, and create a common national market. GST applies to the supply of goods and services and is collected at each stage of production and distribution. There are different types of GST in India, including SGST, CGST, IGST, and UGST, each serving a specific purpose depending on whether a transaction is within a state or between states. In this article, we will explain the types of GST, their components, applications, and how the system works, making it easy for everyone to understand.

What is GST? and its Objectives

GST (Goods and Services Tax) is a comprehensive indirect tax levied on the supply of goods and services. It is designed to replace multiple indirect taxes and simplify the taxation process. GST follows a destination-based taxation principle, meaning the tax is collected in the state where the goods or services are consumed, not where they are produced.

Objectives of GST:

1. Simplify Tax System: GST replaces multiple taxes like VAT, excise duty, and service tax with a single tax.

2. Eliminate Tax Cascading: Reduces the tax-on-tax effect to lower the cost of goods and services.

3. Create a Unified Market: Provides a single national market for goods and services across India.

4. Increase Compliance: Digital invoicing and filing encourage better compliance and transparency.

5. Boost Revenue: Helps the government collect taxes more efficiently by tracking transactions digitally.

By achieving these objectives, GST ensures that both businesses and consumers benefit from a simplified and transparent tax system.

Open Demat account -  Start investing with a quick setup

Types of GST Tax

GST in India has four main types of taxes based on the location and nature of the transaction:

1. CGST (Central Goods and Services Tax):

2. • Collected by the Central Government on intra-state transactions.

3. SGST (State Goods and Services Tax):

4. • Collected by the State Government on intra-state transactions.

5. IGST (Integrated Goods and Services Tax):

6. • Collected by the Central Government on inter-state transactions.

   • Later shared between the Centre and the state where the goods are consumed.

7. UGST (Union Territory Goods and Services Tax):

8. • Collected by the Union Territory Government on transactions within UTs.

These taxes ensure that both the Centre and the State Governments receive their share of revenue depending on the transaction type.

Types of GST in India

In India, GST is classified as:

• Intra-State GST: When goods/services are sold within the same state, CGST and SGST are applied. For example, selling goods in Maharashtra will include CGST (Central) and SGST (State).

• Inter-State GST: When goods/services are sold between states, IGST is applied. For example, selling goods from Maharashtra to Gujarat will include IGST.

• Union Territory GST: For transactions within Union Territories without a legislature, UGST is applied along with CGST.

Each type of GST has specific rules regarding collection, filing, and ITC (Input Tax Credit).

Components of GST and Its Explanation

GST has several key components:

1. CGST (Central GST): Collected by the Central Government for intra-state sales.

2. SGST (State GST): Collected by the State Government for intra-state sales.

3. IGST (Integrated GST): Collected by the Centre for inter-state sales and shared with the destination state.

4. UGST (Union Territory GST): Collected by Union Territory Governments in UTs without legislatures.

5. Input Tax Credit (ITC): Businesses can claim credit for taxes paid on inputs, reducing the tax liability on output.

These components work together to simplify taxation and ensure proper distribution of tax revenue between the Centre and the States.

Current Application of the Different Types of GST

Type of GST

Applicability

Collected By

CGST

Intra-state sales of goods/services

Central Government

SGST

Intra-state sales of goods/services

State Government

IGST

Inter-state sales of goods/services

Central Government (shared with destination state)

UGST

Intra-UT transactions

Union Territory Government

This table helps businesses understand which GST applies depending on whether the transaction is within a state, between states, or in a UT.

Difference Between Types of GST

Feature

CGST/SGST

IGST

UGST

Transaction Type

Intra-state

Inter-state

Intra-UT

Collected By

Centre & State separately

Centre (shared with destination state)

UT Government

Purpose

Revenue sharing within the state

To maintain central revenue for inter-state trade

Revenue collection in UTs

Input Tax Credit

Can claim ITC separately for CGST and SGST

ITC can offset IGST liability

ITC applies like SGST

How is ITC Offset Done?

Input Tax Credit (ITC) allows businesses to reduce tax liability on output by claiming credit for taxes paid on inputs.

• For intra-state transactions: CGST ITC can be used to pay CGST first, then IGST; SGST ITC can only be used for SGST first, then IGST.

• For inter-state transactions: IGST paid on purchases can be offset against IGST payable on sales, followed by CGST and SGST.

This ensures that businesses do not pay tax twice and avoids cascading taxation.

How to Collect GST?

Businesses must:

1. Register for GST on the GST portal.

2. Charge GST on invoices for taxable goods and services.

3. Collect GST from customers at the time of sale.

4. File GST returns monthly, quarterly, or annually.

5. Deposit collected GST to the government through the portal.

Who is Liable to Pay GST?

• Businesses with a turnover above ₹20 lakh (or ₹10 lakh for special category states).

• Sellers of goods and services in India.

• Importers pay IGST on imported goods.

• Certain professionals and online service providers.

Taxes Replaced by GST

GST replaced several indirect taxes:

• Central Excise Duty

• Service Tax

• VAT

• CST

• Entry Tax

• Luxury Tax

• Entertainment Tax

This unifies taxation and simplifies compliance.

Goods Exempted from GST Payment

Certain goods and services are exempt from GST:

• Fresh fruits and vegetables

• Milk, bread, and eggs

• Educational services

• Healthcare services

• Agricultural products

Exemptions help reduce the burden on essential items and benefit consumers.

Conclusion

GST in India simplifies tax collection by unifying multiple taxes into a single system. Different types of GST—CGST, SGST, IGST, and UGST—apply depending on whether the transaction is within a state, between states, or in a union territory. Understanding the components of GST, ITC offsets, exemptions, and the registration process is essential for businesses to stay compliant. By following these rules, businesses can avoid penalties, reduce tax cascading, and operate efficiently.