CGST (Central Goods and Services Tax) in India

CGST is the Central Goods and Services Tax in India. It is considered as a crucial part of the GST system in India. This tax was introduced on 1st July 2017. The tax is a unifying indirect tax levied by the central government on intra-state (within a single state) transactions of GST in India. In this blog, you will get guidance on CGST with its meaning, full form, rates, and so on.

What is CGST?

CGST means the Central Goods and Services Tax. It is one of the types of indirect tax under GST in India. The tax is levied by the Central Government on the supply of goods and services within a single state. It also means intra-state transactions. The GST law has replaced various old indirect taxes to make a unified tax structure for intrastate transactions. The central and state governments with one unified system replaced it.

What is CGST applicability?

CGST applies to intrastate transactions on the supply of goods and services within the same state. In such transactions, the CGST and SGST are collected by the Indian government. The Central Government collects the taxes of Central Goods and Services Tax. In contrast, the State Government collects the taxes of SGST (State Goods and Services Tax).

CGST Rate Structure in India

Here is the table outlining the Central Goods and Services Tax rate structure in India:

Key Features of CGST in India

Listed below are the key features of CGST in India:

a) In case of the buy or sale of goods and services within the same state, tax applies to that transaction. Central Goods and Services Tax goes to the central government as part of the indirect tax.

b) The GST system helps to deduct the tax payment on purchases from the transaction of sales. This reduces the double taxation and makes lower costs for people.

c) The Central Goods and Services Tax system relies on self-assessment. This means the taxpayer determines the amount of tax that are to be paid to the government.

d) Thus, the law has the provisions for CGST audits where needed. These audits prove that the business follows the rules and regulations under GST.

e) If there is any defaults, the Central Goods and Services Tax law enable government to recover taxes through demand and recovery provisions.

f) Fines and penalties are used on the delayed filing of returns or the late deposit of taxes, to name a few cases. This helps to maintain the strictness in the system.

What are the CGST Rules?

Below is the table that outlines the Central Goods and Services Tax rules. These rules will be accessed from the official CBIC website. Some rules are mentioned below:

What is the CGST calculation in India?

Here is the explanation of the Central Goods and Services Tax calculation:

Step 1: Determine the transaction value

You can calculate Central Goods and Services Tax determining the transaction value. This means the price for which goods or services are sold.

Step 2: Identify the CGST rate

It is important to identify the Central Goods and Services Tax rate that depends on the type of goods or services.

Step 3: Apply the formula

You must calculate CGST by using the applicable formula.

The formula to calculate Central Goods and Services Tax is:

CGST = (Taxable value of goods or services × CGST rate) ÷ 100

• Taxable value of goods or services

It means the base price on which tax is levied.

• Central Goods and Services Tax rate:

The Central Goods and Services Tax rate is a percentage rate that applies to goods or services.

For example:

If a person sell a product with a base price of Rs. 10, 000, the 18% rate is the applicable GST rate. The 18% rate will divided into 9% Central Goods and Services Tax and 9% State Goods and Services Tax. So,

1. Taxable value: Rs. 10,000

2. CGST = (Rs. 10,000 × 9) ÷ 100 = Rs. 900

3. SGST = (Rs. 10,000 × 9) ÷ 100 = Rs. 900

Total Price = Rs. 10,000 + Rs. 900 (CGST) + Rs. 900 (SGST) = Rs. 11,800

Key Benefits of CGST

Listed below are the key benefits of CGST (Central Goods and Services Tax) in India:

a) CGST has replaced several central taxes with one unified tax system. This simplified the compliance for businesses.

b) A business person will be able to deduct the taxes paid on purchases from the taxes owed on sales. This can happen by knowing and understanding the concept of Input Tax Credit (ITC).

c) The digital network under the GST law proves that tax filing is simple and transparent for everyone.

d) When all states have the same tax rates, it prevents companies from moving to places with lower costs. It creates a fair competition for businesses.

e) A streamlined tax structures makes simplified compliance and supports national economic growth.

How Can Businesses claim Input Tax Credit (ITC) on CGST paid?

The Input Tax Credit (ITC) under the GST law helps in reducing the tax liability of businesses. It contains the claiming of ITC for the CGST paid on purchases while discharging the tax liability on sales. Here is a detailed explanation:

Eligibility for Input Tax Credit

Here is the eligibility criteria for Input Tax Credit (ITC):

a) GST registration

You must have a valid GSTIN (Goods and Services Tax Identification Number).

b) Valid documents

As a taxpayer, you need to have a tax invoice or debit note.

c) Eligibility conditions

The recipient needs to meet all input tax credit eligibility conditions under Section 16 of the CGST Act.

d) Supplier compliance

The supplier needs to file their returns and pays remit the taxes collected to the government.

e) Business use

The goods or services need to use for business purposes by the recipient.

f) Excluded items

You cannot claim ITC on personal expenses or blocked credits as per Section 17(5) of the CGST Act.

Steps to Claim Input Tax Credit (ITC)

Below are the steps to claim Input Tax Credit (ITC):

Step 1: Reconcile ITC as per the books with the GSTR-2B

You need to match purchase records as per books of account with the auto-generated GSTR-2B statement.

Step 2: File GSTR-3B

As a user, you must declare eligible Input Tax Credit (ITC) for the period in the GSTR-3B return.

Step 3: Offset CGST liability

You can use the Input Tax Credit (ITC) available for the tax period to reduce the Central Goods and Services Tax owed. It also include the remaining liability in cash.

Step 4: Maintain records

In this step, you must keep all the purchase invoice and proof of payments for audits.

Key Restrictions

Here are the key restrictions:

a) Time limit

ITC must be claimed within the time limit prescribed under Section 16(4) of the CGST Act, as amended from time to time.

b) Proportionate credit

In case of mixed use (taxable and exempt supplies), you can claim ITC proportionally.

What is the CGST Act?

The CGST Act, 2017 means a key component of Goods and Services Tax (GST) framework. The Central government levied and collect the Central Goods and Services Tax on all intra-state supplies of goods and services. The Act stated the provisions for self-assessment. The self-assessment is done by taxpayers, input tax credit, compliance audits, and recovery of tax arrears. This is suitable to streamline tax administration and reduce the tax burden. This proves a uniform tax structure across states. It simplifies business operations and tax collection more efficiently.

Conclusion

CGST is the unified tax system under GST in India. The full form of CGST is the Central Goods and Services Tax.  It simplifies the indirect tax for businesses and fuels national economic growth. You must stay updated on the GST rules for business to be audit-ready and tax-efficient. So, it is important to understand Central Goods and Services Tax for any business or individual operating in India. If you have some queries about it, get in touch with Online Legal India.

FAQ

Q1. What is CGST?

CGST is the Central Goods and Services Tax under GST in India. It is a type of indirect tax levied by the Central Government. It applies to the supply of goods and services within a single state. The tax has replaced several old indirect taxes to make a unified tax structure for intrastate transactions.

Q2. When is CGST applicable?

The CGST (Central Goods and Services Tax) is applicable on the supply of goods or services within the same state (intra-state transactions).

Q3. What is the formula of the Central Goods and Services Tax?

The formula of CGST is:

CGST = (Taxable value × CGST rate) ÷ 100

Disclaimer

This article is for informational purposes only and does not constitute legal advice. Online Legal India is a digital platform. If you require legal assistance, we strongly recommend consulting a qualified lawyer or law firm.