Do you know what the GST (Goods and Services Tax) is? It’s a revolutionary tax system that has streamlined India’s indirect taxation structure. Introduced on July 1, 2017, GST replaced multiple taxes like service tax, VAT, and excise duty. This comprehensive tax reform aims to make businesses more competitive by eliminating hidden taxes while simplifying procedures for taxpayers. As an accountant whether you are learning what is contra entry or preparing financial statements you should be knowledgeable about gst since it is the fundamental tax law of the country. So to educate you a bit more on gst, in this article we will go through various kinds of gst:
CGST or Central GST is a tax levied by the central government on all intra-state supplies of goods and services. It applies to businesses that are registered under GST with an annual turnover exceeding Rs 20 lakhs (Rs 10 lakhs for NE States, J&K, Himachal Pradesh & Uttarakhand).
The CGST rate is determined considering various factors such as the type of product/service offered and its demand in the market. The revenue generated through CGST goes directly to the central government’s account.
It simplifies taxation procedures for taxpayers by enabling them to file only one return for both SGST and CGST instead of filing separate returns for each. This eliminates confusion during tax payment processes.
If there’s any discrepancy between SGST and CGST payments, they can be adjusted against each other since they’re part of a single tax system. Therefore, businesses operating within one state will have to pay both taxes together at a combined rate known as the GST rate.
Understanding how CGST works is crucial if you’re running a business that falls under its purview.
SGST or State Goods and Services Tax is a tax that’s levied by the state government on intra-state supplies of goods and services. It applies to both individuals and businesses that make sales within their respective states, unlike IGST which applies to inter-state supplies.
The revenue generated from SGST goes directly to the state government, allowing them greater autonomy in managing their financial resources. Each state determines its own SGST rate based on factors like the nature of goods or services being supplied, demand, supply chain costs etc.
One major benefit of SGST is that it enables states to raise funds for developmental projects without having to rely solely on central funding. This decentralization of power also leads to more efficient management of tax collection and disbursement at the local level.
However, one potential drawback could be inconsistencies in tax rates across different states leading to complications for businesses operating in multiple regions. Nonetheless, overall SGST has been instrumental in increasing transparency and accountability when it comes to taxation policies at the state level.
IGST (Integrated GST)
IGST or Integrated GST is a tax that applies to the movement of goods and services from one state to another. It is levied by the Central government, but the revenue collected from IGST is further distributed among the respective states.
The main objective behind introducing IGST was to promote ease of doing business across state borders in India. The introduction of this tax has eliminated the need for multiple taxes such as CST (Central Sales Tax), which were earlier imposed on inter-state transactions.
Under IGST, both CGST and SGST are applicable at an equal rate. For instance, if a good or service travels from State A to State B with an 18% GST rate, then 9% will be charged under CGST and the rest 9% will come under SGST/UTGST.
To calculate IGST liability correctly, businesses must maintain proper records regarding their inter-state supplies along with details such as invoice number, date of supply etc. This helps in avoiding any discrepancies while filing returns and paying taxes on time.
Integrated GST has brought about significant reforms in terms of simplification and standardization of taxation policies prevalent across different states in India.
● UTGST (Union Territory GST)
This is one of the most misunderstood types of gst. UTGST or Union Territory GST applies to goods and services consumed within union territories such as Lakshadweep, Andaman & Nicobar Islands, Dadra & Nagar Haveli, Daman & Diu, Chandigarh etc. It follows a similar system to SGST where tax revenue goes to the respective union territory’s account.