Explore the Different Types of GST Services in India

The Goods and Services Tax (GST) is a substantial tax reform implemented in India to establish a unified tax structure. It replaced various indirect taxes, making the taxation procedure simple and transparent. In this article, we will look at the several types of GST, its components, and how they have revolutionized the Indian tax system.

Types of GST in India

In India, there are four primary types of GST, and they differ in terms of purpose and application under various conditions. Firms and individuals engaged in trade and services would thus require an awareness of such categories.

Components of GST and Its Explanation

GST comprises several key components that ensure its smooth implementation and functioning across various states and Union Territories (UTs) of India. The components include the following:

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

All of these taxes apply to different conditions and kinds of transactions, therefore it is compulsory to learn their applications to comply perfectly with the requirements for GST.

1. Integrated Goods and Services Tax (IGST)

IGST is taxed on interstate transactions (those between two states) as well as the import and export of goods and services. The central government receives the tax which is split between the states that are involved in the deal.

For example, if a supplier in West Bengal sells products worth Rs. 5,000 to a buyer in Karnataka, the IGST will apply because it is an interstate transaction. If the appropriate GST rate is 18%, the merchant will charge Rs. 5,900, with the IGST of Rs. 900 paid to the central government.

2. State Goods and Services Tax (SGST)

SGST is charged on intrastate transactions. Both the state and federal governments charge taxes on these transactions. The collected tax is split equally between the central government (CGST) and the respective state government (SGST).

For example, if a vendor in West Bengal sells things worth Rs 5,000 within the state, the 18% GST will be distributed equally between 9% CGST and 9% SGST. The total payment will be Rs 5,900, of which Rs 450 will be distributed to the state government and Rs 450 to the central government.

3. Central Goods and Services Tax (CGST)

CGST, like SGST, applies to intrastate transactions, but the income produced is collected by the central government. When the transaction occurs within a state, the CGST is imposed in addition to the SGST.

For example, if a sale of goods occurs in West Bengal for Rs. 5,000 with an 18% GST rate, the tax is split equally between CGST and SGST, i.e., 9% each, and the trader will charge a total of Rs. 5,900. The central government collects Rs. 450 as CGST.

4. Union Territory Goods and Services Tax (UTGST)

UTGST is similar to SGST however, it applies only to Union Territories such as the Andaman and Nicobar Islands and Chandigarh. In transactions within Union Territories, UTGST is applied in addition to CGST, and the relevant Union Territory government receives the tax revenue.

For instance, a sale of goods in Chandigarh will be taxed with UTGST and CGST, both at 9% each for an 18% GST rate. The total bill would be Rs. 5,900, with Rs. 450 going to the central government and Rs. 450 going to the Union Territory government.

Difference Between Types of GST

Understanding the differences between the types of GST is essential for accurate tax calculation and compliance. Below is a tabular comparison for better clarity:

GST Type	Authority Collecting GST	Priority of Tax Credit Use	Applicable Transactions	Benefiting Authority
CGST	Central Government	CGST, IGST	Intrastate Transactions	Central Government
SGST	State Government	SGST, IGST	Intrastate Transactions	State Government
UTGST	Union Territory (UT) Government	UTGST, IGST	Transactions within Union Territories	Union Territory Government
IGST	Central Government	IGST, CGST, SGST	Interstate Transactions	Central Government & State Government

Types of GST Tax

The types of GST taxes are essential for businesses and consumers alike. The primary taxes under GST include:

Goods Tax

Food, clothing, and electrical devices are examples of products liable for goods taxes. The GST rate on certain items might range from 0% to 28%, depending on the type of goods.

Services Tax

The chargeable services under GST include hospitality, entertainment, healthcare, and accounting/law. Services may attract a GST anywhere from 5% to 18%.

Compensation Tax

Compensatory tax is an additional tax on luxury items, apart from sin products such as tobacco, automobiles, and carbonated beverages. This tax is levied to compensate states for any revenue loss resulting from the implementation of GST.

These taxes ensure that goods and services are properly taxed, with rates varying based on their nature and purpose. GST is separated according to the type of transaction. There are two major types of transactions:

1. Inter-state Transactions

These occur between two separate states, and IGST applies.
GST is shared by the central and state governments involved in the transaction.

2. Intrastate Transactions

These transactions take place in the same state, where both CGST and SGST apply.
The tax is distributed evenly between the state and the central government.

Application of Different Types of GST

The application of the different types of GST depends on the nature of the transaction:

SGST and CGST

Example: A trader in Madhya Pradesh sells goods worth Rs. 20,000 to a customer in Madhya Pradesh.

GST rate: 18%

Tax split: 9% CGST (₹1,800) and 9% SGST (₹1,800)

Total amount: ₹23,600 (₹20,000 + ₹3,600 GST)

IGST

Example: A businessman from Madhya Pradesh sells goods worth ₹20,000 to a customer from Maharashtra.

GST Rate: 18%

Tax Breakdown: 18% IGST (Rs. 3,600).

Total Amount: Rs. 23,600 (Rs. 20,000 + Rs. 3,600 IGST).

Taxes Replaced by GST

GST was adopted to simplify India’s tax system and decrease the overlapping effects of numerous taxes. It replaces several of the previously imposed taxes. Here is the list of taxes that GST replaced:

The Central Excise Duty

GST substituted the Central Excise Duty charged on goods that were under manufacturing processes.

Service Tax

The Service Tax imposed by businesses and service providers on services availed of by them was another tax that the GST replaced.

VAT (Value Added Tax)

VAT was replaced by GST on goods in intra-state transactions, making the taxation structure more streamlined.

Customs Duty

Customs duties continue to apply to imported goods, but they have been simplified under the GST regime.

Octroi and Entry Tax.

Octroi and Entry Tax, which were imposed by municipal governments on products entering a certain area, were replaced by GST.

Luxury Tax and Entertainment Tax

Taxes on luxury items and entertainment services have now been subsumed under GST, making the process more transparent.

State-Level Taxes

GST has replaced a range of state-level taxes, including Sales Tax and Purchase Tax, lowering compliance complexity.

Conclusion

GST has transformed the Indian tax structure, boosting transparency and decreasing the burden of double taxation on several kinds of levies. The introduction of CGST, SGST, IGST, and UTGST has simplified inter-state and intra-state tax mechanisms, benefiting both businesses and consumers. Understanding the many types of GST, their components, and how to utilize them is necessary for businesses to maintain tax compliance.

By replacing numerous indirect taxes with a unified system, GST has enhanced the ease of doing business in India, making it a vital aspect of India’s economic growth.