Goods and Services Tax (GST) is a comprehensive tax system applied across India. It simplified the complex mechanism of indirect taxes and replaced multiple taxes with a single, unified tax structure. There are different types of GST based on the type of transaction, interstate or intrastate.
What is GST?
Goods and Services Tax (GST) is a unified, multi-stage tax levied on goods and services in India. It replaces numerous indirect taxes like VAT, excise duty, and service tax, simplifying the country’s taxation system. GST is charged at each point of sale, with businesses receiving input tax credits for taxes paid on their purchases, thereby reducing the cascading effect.
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Types of GST in India
GST is divided into four components based on the nature and location of the transaction. Understanding these GST types helps businesses determine the correct tax applicable to goods and services.
- Central Goods and Services Tax (CGST)
CGST is the portion of GST collected by the Central Government on the supply of goods and services within the same state (intra-state transactions). It replaced several central taxes such as Central Excise Duty and Service Tax. The revenue collected under CGST goes directly to the Central Government.
Example: If a product worth ₹10,000 is sold within the same state at an 18% GST rate, 9% will be charged as CGST and the remaining 9% as SGST.
- State Goods and Services Tax (SGST)
SGST is levied by the State Government on intra-state transactions. It is charged along with CGST whenever goods or services are supplied within the same state. The revenue collected under SGST is received by the respective state government.
Example: For a sale of ₹10,000 within a state at 18% GST, ₹900 will be collected as SGST and ₹900 as CGST.
- Integrated Goods and Services Tax (IGST)
IGST is applicable to inter-state transactions, imports, and exports of goods and services. It is collected by the Central Government and later distributed between the Centre and the destination state as per GST rules. IGST helps streamline tax collection on transactions between different states.
Example: If a supplier in Maharashtra sells goods worth ₹10,000 to a buyer in Karnataka at an 18% GST rate, the entire ₹1,800 will be charged as IGST.
- Union Territory Goods and Services Tax (UTGST)
UTGST is charged on the supply of goods and services within Union Territories that do not have a legislative assembly, such as Chandigarh, Lakshadweep, Dadra & Nagar Haveli and Daman & Diu, and Andaman & Nicobar Islands. It is levied along with CGST, similar to how SGST is charged in states.
Example: If goods worth ₹10,000 are sold within Chandigarh at an 18% GST rate, 9% will be charged as CGST and 9% as UTGST.
Components of GST and its Explanation
Consider having a look to understand the GST composition scheme:
| Component | Description | Collection & Sharing |
| CGST (Central GST) | Levied by the Central Government on intra-state transactions of goods and services. | The revenue goes directly to the Central Government, replacing various central taxes, such as service tax and central excise duty. |
| SGST (State GST) | Levied by State Governments on intra-state transactions. | The revenue goes to the respective State Governments, replacing various state taxes like VAT and entry tax. |
| IGST (Integrated GST) | Applied to inter-state transactions and imports. | Collected by the Central Government and shared between the Central and State Governments according to predetermined formulas. It replaces the previous Central Sales Tax (CST). |
| UTGST | Levied on intra-UT supplies in Union Territories without legislature | Collected by the Union Territory administration and charged along with CGST |
Difference Between Types of GST
Here are different types of GST based on the transaction between state government vs central government.
| GST Component | Definition | Application |
| CGST (Central GST) | Levied by the Central Government on intra-state transactions. | Replaces various central taxes like service tax and central excise duty. |
| SGST(State GST) | Levied by State Governments on intra-state transactions. | Replaces various state taxes like VAT and entry tax. |
| IGST (Integrated GST) | Levied on inter-state transactions and imports. | Replaces the Central Sales Tax (CST), simplifying taxation on inter-state and international transactions. |
Taxes Replaced by GST
Before the introduction of GST on 1 July 2017, businesses in India had to comply with multiple indirect taxes imposed by both the Central and State Governments. This often led to a cascading effect of taxes, where tax was charged on tax, increasing the overall cost of goods and services. GST replaced these multiple levies with a unified tax system, simplifying compliance and creating a common national market.
Central Taxes Replaced by GST
- Central Excise Duty
- Additional Excise Duties
- Service Tax
- Additional Customs Duty (Countervailing Duty or CVD)
- Special Additional Duty of Customs (SAD)
- Central Surcharges and Cesses related to the supply of goods and services
State Taxes Replaced by GST
- Value Added Tax (VAT)
- Central Sales Tax (CST)
- Entry Tax and Octroi
- Purchase Tax
- Luxury Tax
- Entertainment Tax (except taxes levied by local bodies)
- Taxes on Advertisements
- State Surcharges and Cesses related to the supply of goods and services
By replacing these taxes, GST streamlined India’s indirect taxation system, improved tax transparency, reduced compliance burdens, and enabled seamless input tax credit across the supply chain.
Application of Different Types of GST
Here is a quick table to help you understand different GSTs and GST applicability types:
| GST Component | Application |
| CGST (Central GST) | Applied to intrastate transactions of goods and services, collected by the Central Government. |
| SGST (State GST) | Levied by State Governments on intra-state transactions. |
| IGST (Integrated GST) | Applied to inter-state transactions and imports. |
Who is Liable to Pay GST?
GST (Goods and Services Tax) is applicable to a broad range of entities engaged in the supply of goods and services. Here’s a concise overview of who is liable to pay GST:
- Businesses: All businesses that supply goods or services and have an annual turnover exceeding ₹40 lakh (₹20 lakh for special category states) are liable to register and pay GST.
- Individuals: Freelancers, consultants, and service providers are also subject to GST if their annual income exceeds the threshold.
- Consumers: GST is a consumption tax, meaning the end consumers bear the final tax burden, with businesses passing on the GST cost to their customers.
- Other Entities: Importers, exporters, and e-commerce companies are also subject to GST regulations.
Goods Exempted from GST Payment
| Goods | Description |
| Basic Food Items | Items such as rice, wheat, and pulses are exempted from GST, ensuring affordability for essential food staples. |
| Healthcare Products | Medicines, vaccines, and essential healthcare items are largely GST-exempt or taxed at a reduced rate. |
| Books | Educational books, including textbooks and reference materials, are GST-exempt. |
| Agricultural Equipment | Certain agricultural tools and equipment, like hand tools and fertilizers, are exempted from GST. |
| Handicrafts and Traditional Products | Items crafted by traditional artisans, such as handloom textiles and pottery, may be GST-exempt or taxed at a lower rate. |
Conclusion
GST has simplified the taxation system in India by unifying various indirect taxes under a single framework. It benefits businesses and consumers alike. The three types of GST- SGST, CGST and IGST. Each of these GST types play a crucial role in ensuring smooth transactions within states and across borders. With streamlined tax collection and easier compliance, businesses can focus on growth and expansion. Further, with GST registration businesses ensure legal compliance, better credibility, and can have better expansion opportunities. For businesses seeking financial support amidst this tax transition, platforms like Lendingkart offer tailored financing options to help manage working capital and foster business growth efficiently.
Frequently Asked Questions
- What are the 4 types of GST in India?
There are four types of GST in India: CGST, SGST, IGST, and UTGST. CGST and SGST apply to intra-state transactions, IGST applies to inter-state transactions, and UTGST is applicable in Union Territories.
- What is the difference between CGST, SGST, and IGST?
CGST is collected by the Central Government, SGST is collected by the State Government, and IGST is charged on inter-state transactions and imports. The applicable GST depends on where the buyer and seller are located.
- When is IGST charged?
IGST is charged when goods or services are supplied from one state to another or when goods are imported into India.
- Who is required to pay GST?
Businesses, service providers, freelancers, e-commerce operators, importers, and other registered taxpayers are required to pay GST if they meet the prescribed turnover limits or fall under mandatory registration categories.
- Which taxes were replaced by GST?
GST replaced several indirect taxes such as VAT, Service Tax, Central Excise Duty, Entry Tax, Luxury Tax, Entertainment Tax, and Central Sales Tax (CST), creating a unified tax system.
- Is GST applicable on all goods and services?
No. Certain goods and services are exempt from GST, while some are taxed at nil rates. Most goods and services are covered under different GST rate slabs.
- What is UTGST?
UTGST (Union Territory Goods and Services Tax) is levied on transactions taking place within Union Territories that do not have a legislative assembly. It is charged along with CGST.
