Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) are integral components of the Goods and Services Tax (GST) system in India. They represent the division of GST responsibilities between the central and state governments for intra-state transactions.
Central Goods and Services Tax (CGST)
1. Definition and Role:
- Definition: CGST is the tax levied by the central government on the supply of goods and services within a single state.
- Role: It is designed to ensure that the central government receives a share of the tax revenue from intra-state transactions.
2. Applicability:
- Applicability: CGST applies to transactions of goods and services that occur within the same state, excluding inter-state transactions and imports.
- Example: If a company in Delhi sells goods to another company in Delhi, CGST is levied on that transaction.
3. Tax Collection and Credit:
- Collection: The seller collects CGST from the buyer on behalf of the central government.
- Input Tax Credit (ITC): Businesses can claim ITC on CGST paid on inputs against their CGST liability on outputs.
- Example: If a manufacturer in Delhi purchases raw materials for ₹1,00,000 and pays CGST of ₹9,000 (at 9%), this ₹9,000 can be used to offset the CGST liability on their final product.
4. Filing and Compliance:
- Filing: Businesses must file CGST returns regularly to report their CGST liabilities and claim ITC.
- Example: A business in Delhi files its GST return detailing CGST collected on sales and ITC claimed on inputs.
State Goods and Services Tax (SGST)
1. Definition and Role:
- Definition: SGST is the tax levied by the state government on the supply of goods and services within a single state.
- Role: It ensures that the state government receives a share of the tax revenue from intra-state transactions.
2. Applicability:
- Applicability: SGST applies to transactions of goods and services within the same state, similar to CGST, but is collected by the state government.
- Example: If a retailer in Karnataka sells goods to a customer in Karnataka, SGST is applied to that transaction.
3. Tax Collection and Credit:
- Collection: The retailer collects SGST from the customer on behalf of the state government.
- Input Tax Credit (ITC): Businesses can claim ITC on SGST paid on inputs against their SGST liability on outputs.
- Example: If a business in Karnataka purchases goods for ₹1,00,000 and pays SGST of ₹9,000 (at 9%), this amount can be used to offset the SGST liability on their final sale.
4. Filing and Compliance:
- Filing: Businesses must file SGST returns along with CGST returns to report their SGST liabilities and claim ITC.
- Example: A business in Karnataka files its GST return, showing SGST collected on sales and ITC claimed on inputs.
Mechanism and Integration
- Unified Tax Rate:
- Mechanism: CGST and SGST are levied together at the same rate on intra-state transactions, making up the total GST rate.
- Example: If the GST rate on a product is 18%, it is divided equally as 9% CGST and 9% SGST.
- Input Tax Credit (ITC):
- Mechanism: Businesses can claim ITC on CGST and SGST paid on inputs. ITC helps avoid the cascading effect of taxes.
- Example: A manufacturer pays ₹9,000 CGST and ₹9,000 SGST on raw materials. They can use this ITC to offset their CGST and SGST liabilities on finished goods.
- Returns Filing:
- Mechanism: Businesses need to file GST returns that include details of both CGST and SGST. This ensures transparency and accurate tax collection.
- Example: A business in Delhi submits a GST return showing CGST and SGST collected, along with ITC claimed on purchases.
- Revenue Sharing:
- Mechanism: The collected CGST is deposited into the central government’s account, while SGST is deposited into the respective state government’s account.
- Example: On a ₹1,00,000 sale with 9% CGST and 9% SGST, ₹9,000 is credited to the central government, and ₹9,000 is credited to the state government.
Examples
- Example 1: Retail Sale:
- Scenario: A retailer in Mumbai sells a product for ₹50,000.
- GST Rate: 18% (9% CGST and 9% SGST).
- CGST: ₹4,500 (9% of ₹50,000).
- SGST: ₹4,500 (9% of ₹50,000).
- Total GST Collected: ₹9,000.
- Example 2: Inter-State Sale:
- Scenario: A company in Delhi sells goods to a customer in Bangalore.
- GST Rate: 18% (charged as IGST for inter-state transactions).
- IGST: ₹9,000 (18% of ₹50,000).
- Revenue Sharing: IGST is collected by the central government and then shared between the states as per the destination principle.
Summary
1. Central Goods and Services Tax (CGST):
- Definition: Tax levied by the central government on intra-state transactions.
- Role: Ensures central government revenue.
- Example: A ₹1,00,000 sale in Delhi incurs ₹9,000 CGST.
2. State Goods and Services Tax (SGST):
- Definition: Tax levied by state governments on intra-state transactions.
- Role: Ensures state government revenue.
- Example: A ₹1,00,000 sale in Karnataka incurs ₹9,000 SGST.
3. Mechanism:
- Unified Rate: Combined CGST and SGST make up the total GST rate.
- Input Tax Credit: ITC available for offsetting CGST and SGST liabilities.
- Returns Filing: Regular returns required for CGST and SGST.
4. Revenue Sharing:
- CGST: Collected by central government.
- SGST: Collected by state government.
CGST and SGST together form a dual GST system for intra-state transactions, simplifying the tax structure and ensuring both central and state governments receive their share of tax revenue.
