Top 4 Types of GST – Exclusive Guide – 2024

Goods and Services Tax (GST) is considered to be one of the most comprehensive tax reforms in India, aimed at simplifying the indirect tax structure and promoting economic growth. Yet, understanding the top 4 types of GST and its application to various transactions can be tricky.

In this all-inclusive blog post, we will give you all the information you need to know about the top 4 types of GST: CGST, SGST, IGST, and finally, UGST.

For anyone from a businessman to a student or anyone interested in learning about the intricacies of India’s tax system, this blog post will provide a clear, practical explanation of the top 4 types of GST.

Read on to understand how these taxes affect your business and daily transactions, along with essential tips to stay within the boundaries of the law!

What is the Introduction of GST in India?

The Goods and Services Tax in India was implemented on July 1, 2017. GST consolidated various indirect taxes such as VAT, service tax, and excise duty into a unified tax framework.

The government’s aim was to eliminate the cascading effect of taxes or knock-on effects of taxes and create a more transparent and efficient taxation system. GST is a destination-based tax levied on the supply of goods and services in India.

However, GST is not a single, all-encompassing tax. Instead, it is divided into different types to accommodate the complex nature of transactions in India. Every kind of GST applies to certain types of transactions, but it depends on where the transaction is carried out and whether the goods or services are bought in one state and sold in another.

In this guide, we’ll break down the four main types of GST that businesses and individuals deal with in India:

• CGST (Central Goods and Services Tax)
• SGST (State Goods and Services Tax)
• IGST (Integrated Goods and Services Tax)
• UGST (Union Territory Goods and Services Tax)

Let’s dive into the details of each type to understand better how they work.

What are the Types of GST In India?

We are going to discuss the top 4 types of GST in detail below, which will help you get all the information about GST that no one else has been able to provide you yet:

CGST – Central Goods and Services Tax

CGST stands for Central Goods and Services Tax. Central Goods and Services Tax applies to the tax levied by the central government on inter-state transactions of goods and services. It is a dual GST, just like SGST, in which both the state and central government collect the same amount of tax.

How CGST Works:

• CGST can be levied when the supply of goods or services is made within the same state (inter-state supply).
• It can be collected and paid to the central government.
• CGST applies to all businesses that are exempted by the government.

For example, if a business in Delhi sells goods worth ₹10,000 to a customer in Delhi, then CGST will be applicable to this transaction. Therefore, the rate of CGST is usually 9%. The seller collects ₹900 from the customer and gives it to the central government.

Example:

• Sale of Goods worth ₹10,000 (Intra-State)
• CGST (9%) = ₹900
• Total GST collected = ₹900 (CGST) + ₹900 (SGST) = ₹1,800

SGST – State Goods and Services Tax

SGST is a tax collected by the state government on inter-state transactions, while CGST is collected by the central government. Also, both CGST and SGST will apply to the same transaction, with the revenue being split between the central and state governments.

How SGST Works:

• This is the tax that applies to inter-state supplies (transactions within the same state).
• It is collected by the respective state government.
• The general rate of SGST is equal to that of CGST, although it may vary in some cases as per state-specific tax rates.

For example, A business in Gujarat will have to pay 9% CGST as well as 9% SGST for selling goods to a customer residing in Gujarat (in a standard case).

Example:

• Sale of Goods worth ₹10,000 (Intra-State)
• SGST (9%) = ₹900
• Total GST collected = ₹900 (CGST) + ₹900 (SGST) = ₹1,800

IGST – Integrated Goods and Services Tax

IGST is the tax that is levied on inter-state transactions, i.e., on transactions that take place between two different states. This is expected to make trade between other states much smoother, where the tax is collected at the point of supply and not at so many intermediary points.

How IGST Works:

• IGST is collected whenever goods or services are supplied between two different states, i.e., inter-state supplies.
• IGST is collected by the central government and is later divided among both the central and state governments.
• IGST ensures that the supply chain is smooth, and no tax has to be paid multiple times for the movement of goods between states.

For example, when a seller based in Delhi sells a product to a buyer in Maharashtra, IGST will be applicable for that transaction. IGST rates are usually 18%, as it includes the combined rate of CGST and SGST.

Example:

• Sale of Goods worth ₹10,000 (Inter-State)
• IGST (18%) = ₹1,800
• Total GST collected = ₹1,800 (IGST)

UGST – Union Territory Goods and Services Tax

UGST is a tax payable for transactions taking place in the Union Territories of India. It is similar to SGST but is payable only in those Union Territories where there is no State GST. 

How UGST Works:

• UGST is payable in Union Territories like Jammu and Kashmir, Chandigarh, Andaman and Nicobar Islands, etc. 
• The collection is done by the respective Union Territory Government. The rate of UGST is usually in line with the rate of SGST, but it is restricted to Union Territories only. 

For example, if a business house in Chandigarh sells goods to a customer residing in Chandigarh, UGST will also be applicable along with CGST.

Example:

• Sale of Goods worth ₹10,000 (Intra-Union Territory)
• CGST (9%) = ₹900
• UGST (9%) = ₹900
• Total GST collected = ₹900 (CGST) + ₹900 (UGST) = ₹1,800

What is the Difference Between CGST, SGST, IGST, and UGST?

The main differences between the 4 types of GST lie in their applicability, the jurisdiction under which they are levied, and how they affect transactions.

What are the Types of GST Tax?

The following are the main types of GST, which depend on the following type of transaction:

Inter-State Transactions (IGST)

Inter-state Transactions in which goods or services are supplied between two different states. In that case, if a business located in one state sells products or services to a customer located in another state, IGST is applicable. It is collected by the central government, and the money is split between the central and state governments.

Example:

• A business located in Mumbai, Maharashtra, sells products to a customer located in Delhi.
• The applicable tax will be IGST, calculated at a combined CGST + SGST rate of 18%.

Intra-State Transactions (CGST + SGST)

Since inter-state transactions involve both buyer and seller parties residing in the same state, both CGST and SGST are levied. Half of the total types of GST collected goes to the central government, while the remaining half goes to the state government.

Example:

• A seller in Kolkata (West Bengal) sells goods to a customer in Kolkata.
• The applicable tax would be CGST and SGST, each charged at 9% (a total of 18%).

What is the Application of Different Types of GST?

Here’s the complete application of differnt types of GST:

How Many Taxes are Replaced By GST?

Before all types of GST, India had a complex indirect tax structure, with multiple taxes levied at different stages. GST replaced the following taxes:

1. Central Taxes:
   • Excise Duty
   • Service Tax
   • Additional Customs Duty
   • CVD (Countervailing Duty)
2. State Taxes:
   • Sales Tax / VAT (Value Added Tax)
   • Octroi
   • Entertainment Tax
   • Luxury Tax
   • Purchase Tax
   • State Cesses and Surcharges

Who is Liable to Pay GST?

GST is usually collected by the seller, who will pass on the tax to the buyer. However, there are certain conditions for liability as different situations may arise depending on whether the supply will be classified as intra-state or inter-state and who the parties involved are. Here is who will be liable in each case:

• Registered Businesses: When the business is registered under GST, based on the prescribed turnover limits, it collects and pays GST on the products or services sold.
• Consumers: Consumers pay the tax indirectly as it is included in the final price of the product or service.
• E-commerce Operators: Even e-commerce sites collect GST in the name of the seller (marketplace model).

Note: In some instances, such as reverse charge mechanism, the buyer may also be liable to pay GST.

Which Type of Goods are Exempted from GST Payment?

Not all goods and services are subject to GST. The government has exempted certain goods and services either fully or partially from the burden of GST. Below is a list of some of the most common exempted goods and services.

• Essential Food Items: Pulses, vegetables, fruits, milk, and eggs are exempt from GST.
• Healthcare Services:  Medical services and health insurance premiums are generally exempt.
• Education Services: School fees, textbooks, and educational services are generally exempt.
• Exported Goods: All goods and services exported out of India are zero-rated, which means no GST is applicable, but the business can charge an amount of tax on inputs.

This exemption list works towards reducing the amount of tax on essential goods and services. As a result, these services and goods become more affordable to consumers.

What are the Objectives of GST?

The primary objectives of GST are:

• Unification: It aims to bring uniformity in taxes across India and remove the cascading effect of taxes. 
• Transparency: It simplifies the tax system and helps in making the business environment more transparent. 
• Tax Compliance: The whole concept of tax evasion will be minimized through hassle-free IT infrastructure. 
• Boost to Economy:  Easy navigation and smooth business practices will help boost the economy of India.

What are the Benefits of GST?

GST offers several benefits to both businesses and consumers, which include:

• Simplification of Tax System: GST eliminates the need for multiple taxes as it has a single tax structure, making things simpler for businesses.
• Seamless Movement of Goods: GST eliminates border checks and enables more straightforward inter-state trade with less paperwork.
• Higher Compliance: Since GST is filed digitally, it helps businesses keep accurate records and maintain better compliance
• Cost Reduction: Since GST removes the cascading effect of taxes, the overall tax burden on businesses and consumers is reduced
• Boost to Exports: Zero-rating exports under GST helps increase the competitiveness of Indian goods in the global market.

What are the Types of GST Returns?

Here are all types of GST returns in india:

• GSTR-3B
• GSTR-5
• GSTR-11
• GSTR-6
• GSTR-7
• GSTR-9
• Gstr-1
• Gstr-10
• GSTR-9C
• Gstr-2
• Gstr-5: Non-resident Taxpayers
• Gstr-9a
• Cmp-08
• Gstr-1: Outward Supplies Details
• Gstr-7 (Tds Return)
• Gstr-9 (Annual Return)
• ITC
• Output GST
• Gstr-11: Refund Claim
• Gstr-2a
• Gstr-6 (Return For Input Service Distributors)
• Gstr-8: E-commerce Operator
• Sales
• GSTR-6A

Also Read: Types of GST Registration

In Conclusion

It is essential for both businesses and individuals to understand the types of GST, their applications, and how they impact inter-state and intra-state transactions. 

GST is a game-changer for India’s tax landscape, offering greater efficiency, transparency, and a reduced compliance burden. 

With the proper knowledge and preparation, businesses can leverage GST to streamline operations and ensure long-term growth. 

For more detailed guidance on GST-related queries or to learn how it applies to your specific business, feel free to reach out to us!

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