The Goods and Service Tax (GST) is a destination-based tax, in contrast to the Value Added Taxation (VAT) regulations. It implies that it must be gathered and deposited in the nation where the final user or consumer purchases the products or services. India is a federal nation, meaning that both the Central and State governments are given the authority to levy taxes and generate income. One of the most well-known tax reforms in India is the GST. Since Independence, it has improved indirect taxation structure consistency and assisted in removing the cascading effect of the many taxes that were previously imposed under that taxation system in various forms of GST.

What are the different types of GST?

In India, GST has also been subcategorized into four different sorts of taxes.

• Goods and services tax in the country (CGST)
• State Goods and Services Tax is referred to as SGST (SGST)
• Integrated Goods and Services Tax is referred to as IGST (IGST)
• UTGST or UGST, or Union Territory Goods and Services Tax

What is SGST, CGST, IGST and UTGST?
 

Depending on the various circumstances whether the transaction is intrastate or interstate, the central government is required by the GST statute to collect CGST, SGST, or IGST.

Both the SGST and CGST will be collected when a state's borders are crossed to provide goods or services, a practice is known as intra-state transactions. While only the IGST will be collected if the delivery of goods or services takes place in what is known as inter-state transactions. To determine if taxes are applicable, using the correct GSTIN becomes crucial. Use the GST search tool to verify before entering the GST registration number in the sales invoice.

It should be in mind that GST is a geographical location-based tax, meaning that it is only paid by the state where the commodities are consumed and not by the state where they are produced. CGST, SGST, and IGST are the three taxes that make up the GST, as opposed to the previous system of several taxes such as Central Excise, Service Tax, State VAT, etc.

Central Goods and Services Tax (CGST)
 

The CGST Act will govern the tax, which is levied by the Central Government on intrastate deliveries of both goods and services under the GST system. The same intrastate supply will be subject to SGST as well, but it will be managed by the state government.

This suggests that both the Central and State governments will concur on merging their taxes in a way that ensures a fair division of revenue between them. However, Section 8 of the GST Act makes it plain that taxes must be paid on all intrastate supplies of goods and/or services, but the rate of tax cannot exceed 14% per item.

State Goods and Services Tax (SGST)
 

The SGST Act will govern the tax, which is levied by the State Government on Intra State Supplies of Both Goods and Services under the GST. As previously stated, the same intrastate supply will be subject to CGST, which will be administered by the central government.

Union Territory Goods and Services Tax (UTGST)?
 

A tax levied by the governments of the Union Territories on the supply of goods and services inside each territory is known as the Union Territory Goods and Services Tax, or UTGST. 

It makes reference to the fee charged for the delivery of goods and services inside a Union Territory. 

The UTGST Act regulates it, and it is assessed concurrently with CGST.

UTGST is imposed in Union Territories that do not have their own legislature, just like the SGST is. 

Purchases are done in the Union Territories of Chandigarh, Dadra and Nagar Haveli, Daman and Diu, and Lakshadweep is subject to UTGST. Please be informed that Delhi and Puducherry would be governed by SGST law since they are union territories with their own legislatures.

Similar to SGST, UTGST uses its ITCs in a similar order. ITC of UTGST should be first applied to UTGST. Any unpaid balance may be applied to offset any IGST liability.

Integrated Goods and Services Tax (IGST)?
 

The IGST Act will control the tax, which is imposed under the GST on all interstate sales of goods and/or services. Any supply of goods or services, whether imported into India or exported from India, shall be subject to the IGST.

• Exports would not be taxed at all.
• The State and Federal/ Central governments will split the tax revenue.

Why split into SGST, CGST, and IGST?
 

The authority to levy and collect taxes has been delegated to both the Centre and the States in the federal nation of India. According to the Constitution, each government must fulfil specific duties for which it must collect tax money. GST is being collected concurrently by the Centre and States. To ensure "One Nation, One Tax," the three different types of tax structures are put in place to assist taxpayers in claiming credits against one another.

What determines if CGST, GST on IGST is applicable?
 

Knowing whether a transaction is an intra-state supply or an inter-state supply is crucial in order to establish which of the three types of taxes—Central State Goods & Services Tax (SGST), or Integrated Goods & Services Tax (IGST), Goods & Services Tax (CGST), —will apply in a taxable transaction.

• When the supplier's location and the site of supply, or the buyer's location, are in the same state, the transaction is considered an intra-state supply of goods or services. A seller must collect both the CGST and the SGST from the buyer in intrastate transactions. The Central Government receives the CGST, while the State Government receives the SGST.
   
• When the Geolocation of the supplier and the place of supply are in separate states, the provision of products or services is considered to be interstate. Additionally, when goods or services are exported, imported, or supplied to or by an SEZ unit, the transaction is presumed to be interstate. In an interstate transaction, the seller is required to collect the buyer's IGST.

How are input tax credits adjusted?
 

Let's say that manufacturer A sells goods for Rs. 10,000 to dealer B in Maharashtra from Maharashtra.

For Rs. 17,500, Dealer B resells them to Trader C in Rajasthan.

In Rajasthan, trader C eventually sells to end-user D for Rs. 30,000.

Consider the following hypothetical tax rates: CGST = 9%, SG = 9%, and IG = 9 + 9 = 18%.

Since A is selling this to B within the state of Maharashtra, CGST at 9% and SGST at 9% will be applied. Trader C purchases goods from Dealer B (of Maharashtra) (Rajasthan). This sale is therefore interstate and subject to IGST at 18%. Rajasthani trader C sells to end-user D who is also a resident of Rajasthan. Again, it is an intra-state sale, thus CGST at 9% and SGST at 9% will be applied.

How SGST, CGST and IGST will be collected?
 

Any IGST credit shall be allocated to the first set off in the following order:

• Handle the IGST liability first.
• Then, depending on your preference, start out with GST or  SGST obligation.

Since GST is a consumption-based tax, it would be paid to Rajasthan, the state where the items were consumed. By that reasoning, Maharashtra (the location of the sales) shouldn't be subject to taxes. The State of Rajasthan and the Federal Government should have received 2,700 each (30,000*9%).

As a result, Maharashtra (the exporting state) will need to transmit credit for Rs. 900 in SGST to the Centre in order to pay for IGST.

In exchange, the central government will give the importing state of Rajasthan Rs. 450 in IGST.

The example given above demonstrates the necessity of three taxes: SGST, CGST, and IGST. 

Together, all three will fulfil GST's two objectives:

• All taxes on every purchase are available as credits thanks to the policy "One Nation, One Tax."
• Dual taxation: The federal government and the states both receive funding.

With new terms like "place of supply" and new tax structures, GST is an entirely new tax. Due to the uncertainty, this causes, some taxpayers can find themselves paying the incorrect kind of GST.

Conclusion:

In other words, the Products and Services Tax is applicable to the provision of goods and services (GST). Multi-stage Goods and Services Tax Law, which depends on the destination, applies to every value addition in India. The entire country is governed by a single domestic indirect tax regime known as the GST and GST modification is also available in certain states of India.