On the 1st of July, 2017, the new Goods and Service Tax (GST) came into existence in India by making an amendment to the Constitution. The primary objective of introducing GST in the country was to club a number of different taxes and simplify the taxation process for Indians. Under the new regime, there are 5 distinct tax slabs for making tax collection simpler – 0%, 5%, 12%, 18%, and 28%.
Before understanding the different types of GST in India, let us have a look at the key features offered by the new regime:
- GST has come into effect by combining 17 distinct indirect taxes paid at the central and state level
- It is a consumption-based tax
- GST is applied to the ‘supply’ of goods and services
- There is no differentiation between goods and services under this regime
- GST was introduced to ensure a free flow of credit
- GST is collected according to value addition at different stages of the supply chain
- The tax is dependent on the location where the goods/services are consumed
Types of GST in India
Under the new tax regime of GST, there are three major types of taxes – CGST, SGST, and IGST.
What Is CGST?
CGST stands for Central Goods and Services Tax. As the name suggests, the revenue collected by this tax is earned by the Central Government of India. It is the tax applicable on intrastate transactions, i.e., transactions carried out within the same state. CGST was introduced to include multiple central taxes including State Tax, SAD, CST, and more under a single umbrella. The prices of goods and services under CGST are charged on the basis of the basic market price.
Here are the CGST rates for commonly consumed items:
- Household necessities such as coffee (excluding instant coffee), spices, tea, sugar, and oil – 2.5%
- Coal, Indian sweets, and life-saving drugs covered under the existing GST slab – 2.5%
- Computers and processed food items – 6%
- Soap, toothpaste, hair oil, industrial intermediaries, and capital goods – 9%
- Premium cars, luxury items, AC, refrigerator, aerated drinks, high-end bikes, cigarettes, and other relevant consumer durables – 14%
What Is SGST?
SGST is one of the types of GST stands for State Goods and Service Tax. Like CGST, SGST is applicable for transactions carried out within the boundaries of the same state (intrastate transactions). This is the tax levied by a state on the goods and services offered within the concerned state and is governed by the SGST tax. The revenue generated by this tax is collected only by the State Government of the concerned state.
It is important to note that in the case of an intrastate supply of goods and services, both CGST and SGST are levied to the individual making the purchase. For example, if a trader in Gujarat sells goods worth ₹5,000 to another trader in Gujarat, the GST to be paid by them will include both CGST and SGST going to the Central and State Governments respectively.
Here are the SGST rates for commonly consumed items:
- Household necessities such as coffee (excluding instant coffee), spices, tea, sugar, and oil – 2.5%
- Coal, Indian sweets, and life-saving drugs covered under the existing GST slab – 2.5%
- Computers and processed food items – 6%
- Soap, toothpaste, hair oil, industrial intermediaries, and capital goods – 9%
- Premium cars, luxury items, AC, refrigerator, aerated drinks, high-end bikes, cigarettes, and other relevant consumer durables – 14%
What Is IGST?
IGST stands for Integrated Goods and Service Tax. This is tax is levied on interstate supply of goods or services, i.e., the supply taking place between two different states in India. IGST is also charged on imports and exports and is governed by the IGST Act. The revenue generated from this tax is collected by the Central Government of India.
Once IGST is collected, it is distributed among the concerned states between which the transactions took place. Let’s say a trader from Gujarat sells goods worth ₹5,000 to a trader in Maharashtra. In this case, IGST will be levied on the transaction. If the GST rate here is 18%, the trader from Gujarat will charge ₹5,900 for the transaction with ₹900 going to the Central Government as IGST.
Here are the IGST rates for commonly consumed items:
- Household necessities such as coffee (excluding instant coffee), spices, tea, sugar, and oil – 5%
- Coal, Indian sweets, and life-saving drugs covered under the existing GST slab – 5%
- Computers and processed food items – 12%
- Soap, toothpaste, hair oil, industrial intermediaries, and capital goods – 18%
- Premium cars, luxury items, AC, refrigerator, aerated drinks, high-end bikes, cigarettes, and other relevant consumer durables – 28%
What Is UGST?
Now that we have discussed CGST, SGST, and IGST, it is important to briefly talk about UGST. UGST stands for Union Territory Goods and Service Tax. It is a counterpart of SGST with the revenue collected going to the concerned union territory within which the transactions take place. UGST is applicable for the supply of goods and services taking place in Chandigarh, Daman and Diu, Dadra and Nagar Haveli, Lakshadweep, and Andaman and Nicobar Islands. With it being a replacement for SGST in union territories, its rates and features are the same as those of SGST.
What Are The Benefits Of GST?
Before concluding, let us have a look at some of the most important benefits offered by the new regime of GST:
- GST gets rid of the cascading effect of taxes charged by the central and state governments
- It facilitates a better threshold for businesses for registration across the country
- The taxes can be paid easily via online processes
- It has led to better efficiency of logistics
- It has reduced tax compliance in the country
- It has facilitated a composition scheme for small business operations
The Final Word
These were the different types of GST charged in India under the new tax regime. Whether you own a business or simply are a consumer of goods and services, it is important to be aware of the taxes you are paying and the ones you are required to charge for your services. A good understanding of the existing tax regime leads to smoother transactions and hassle-free tax payments. To get the latest updates and news related to GST you can visit official GST portal.
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