What is SGST, CGST, IGST and UTGST?

Under GST, determining whether a supply is inter-state or intra-state is essential, as it dictates the applicable tax—Central GST (CGST), State GST (SGST), or Integrated GST (IGST). Proper classification ensures compliance, accurate tax calculation, and timely payment.
Inter-State Supply: An inter-state supply of goods or services arises when the supplier’s location and the place of supply are in:

Different states

Different Union territories, or
A state and a Union territory

Additionally, the supply of goods imported into India, until they cross the customs frontiers, or the supply of services imported into India, gets treatment as interstate supplies.

Tax Applicable: IGST is levied on inter-state supplies. This is because the IGST framework has its design to ensure that the tax revenue on inter-state sales gets sharing between the originating state and the consuming state.

Example: A supplier based in Maharashtra selling goods to a customer in Tamil Nadu would be an inter-state transaction, attracting IGST.

Intra-State Supply: An intra-state supply of goods or services occurs when the supplier’s location and the place of supply are in the same state or Union territory.
Tax Applicable: Intra-state supplies are subject to both CGST and SGST/UTGST, ensuring that the revenue has its distribution between the central and state governments within the same state.

Example: A supplier and customer both located within Karnataka would represent an intra-state transaction, attracting both CGST and SGST.

Place of Supply: Determining the place of supply is fundamental to understanding whether a supply is inter-state or intra-state. The rules vary for goods and services:

Goods: The place of supply for goods is generally where the goods terminate for delivery to the recipient. For instance, if goods have shipment from Gujarat to Delhi, the place of supply is Delhi.
Services: The place of supply for services depends on the type of service. For example, for services related to immovable property, the place of supply is where the property is situated.

Special Provisions:

Import and Export: Exports and imports have treatment as inter-state supplies. Exports are zero-rated, meaning GST with GST registration in Bangalore is not charged on exports, but input tax credit is available. Imports are liable to IGST in addition to any applicable customs duties. Supply to or by SEZs: Supplies to Special Economic Zones (SEZ) or by SEZs are treated as inter-state supplies, irrespective of the location.

Challenges:

Documentation: Businesses must maintain accurate documentation to support the determination of the place of supply, especially in cases involving multiple locations or complex service deliveries.

Compliance: Incorrect determination of the type of supply can lead to wrong GST charges, resulting in compliance issues and potential penalties.

Why there is split into SGST, CGST, and IGST?

India, being a federal country, assigns distinct powers to both the Centre and states to levy and collect taxes as per the Constitution. These governments have separate responsibilities, requiring them to generate tax revenue, which is now unified under GST.

To enable this, both the Centre and states impose GST at the same time. The government gives introduction to the three-tier tax structure—SGST, CGST, and IGST—to enable taxpayers to claim input tax credits across these categories, thereby upholding the principle of “One Nation, One Tax.”

What determines if CGST, SGST or IGST is applicable?

Determining whether Central Goods & Services Tax (CGST), State Goods & Services Tax (SGST), or Integrated Goods & Services Tax (IGST) applies to a taxable transaction requires identifying whether the supply is intrastate or interstate.

An intrastate supply of goods or services occurs when both the supplier and the place of supply (the buyer’s location) are within the same state. In these transactions, the seller collects both CGST and SGST from the buyer, deposits CGST with the Central Government, and deposits SGST with the State Government.

On the other hand, an interstate supply of goods or services occurs when the supplier and the place of supply are in different states. Transactions that involve the export or import of goods or services, or supplies to or from an SEZ unit, consider these as interstate supplies. In these cases, the seller collects IGST from the buyer.

Conclusion

In summary, SGST, CGST, and IGST are essential components of India’s GST system, facilitating tax collection between the Centre and states. SGST and CGST apply to intrastate supplies, while IGST is for interstate transactions, imports, and exports. This system upholds the “One Nation, One Tax” principle, streamlining tax processes and boosting economic growth.

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