Types of gst in brief
Answers
Answer: Types of GST
There are four types of GST as explained below, these are:
SGST – GST imposed by specific State governments on the intra-State trade and services or trade within the state is called SGST(State-GST). Here the revenues are earned by the State govt. due to SGST as the transaction occurred within the state. For example – Suppose goods manufactured and sold within Haryana state then SGST will be collected by the Haryana state.
UGST – In case of Union territories such as Chandigarh, instead of State govt. the GST is collected by the Central administration and is referred to as UGST(Union-GST).
CGST – For an intra-State transaction of goods and services, CGST(Central-GST) is levied by the Central government. It is collected along with the SGST or UGST, and the revenues collected are distributed between the State and the Central govt. For example – If the goods or services are provided within State Haryana, then along with SGST or UGST, CGST will also be collected.IGST – Integrated GST is collected on goods and services transactions between different states. It is also applied to imports or exports of goods and services. Here the SGST portion of the tax collected is given to the state, which is the consumer of the said goods or services. The IGST earned is then divided between the state and the central government.
Why Do We Need GST?
There are different reasons to implement GST in the country such as-
There were multiple taxes levied by the Central and State governments before GST regime was introduced in the country.
Different State governments followed a different set of rules and regulations related to taxation.
The Central government levied central State tax on an inter-state transaction.
As a result of multiple taxes or lack of uniformity present in the tax structure, the internal trade within the country suffered immensely. Overlapping of taxes at the State and Central level or cascading impact of tax regime was undermining the internal trade.
Determining the Application of CGST, SGST, UGST or IGST?
The primary factor in determining the application of SGST/UGST along with CGST or only IGST is the location of the consumer and the supplier of goods and services.
The GST regime takes into consideration two types of transactions, and depending on them, GST is applied.
1. Intra-State transactions
The transaction which is carried out within a state, both the SGST along with CGST are applied at the collection time. For example – For 1 tonne of Iron-ore supplied in Jharkhand state by a supplier to a consumer within the Jharkhand state, will invoke 5% of GST that is collected from the consumer by a supplier. The 5% GST collected constitutes 2.5% CGST and 2.5% SGST. The tax collected will be diverted directly to the centre and state govt.
2. Inter-State transactions
If the transactions are carried out between two different states, then IGST is applied. For example – If a supplier supplies iron ore from Jharkhand to a consumer in Punjab, then IGST is levied. Here, the IGST tax collected by the central government will be divided between the Punjab government(State of consumption) and the Centre. In a nutshell, intra-State transactions invite both the CGST and the SGST whereas IGST is levied on goods and service transactions carried out between different states. Most importantly, a consumer does not have to spend more money because the CGST and SGST combined rate equals IGST. The system has brought uniformity in tax structure, and a win-win situation created both for a consumer and seller.
CGST, SGST and IGST- rates of common items
Goods CGST SGST IGST
Household necessities like coffee (except instant), tea, spices, edible oil,and sugar. Life-saving drugs, coal and Indian sweets are coveredunder present GST slab. 2.5% 2.5% 5%
Processed Food and computers 6% 6% 12%
Hair oil, soap and toothpaste, Capital goods and Industrial intermediaries. 9% 9% 18%
Luxury items, premium cars and consumers durables such as AC and refrigerator, cigarettes, aerated drinks, and High-end motorcycles 14% 14% 28%
Input Tax Credit under GST
Suppose you being a producer has paid GST of ₹500 on the final-product. But you have paid ₹300 GST on the purchase of the required raw material. Now, according to the input tax credit system, you can claim ₹300, and the total tax outgo(GST) is only ₹200 at the delivery time.
Now let us understand the method to implement input tax credit concerning CGST, SGST and IGST credit. In accordance with the GST act, the GST credit should be applied as follows;
To set-off IGST liability
To set-off CGST liability
To set-off SGST liability