Types of GST in India | Explained

What is GST?

Due to the various types of indirect taxes levied on consumers and businesses, many felt the need for a unified tax system. It was the government led by Prime Minister Atal Bihari Vajpayee which first proposed a unified system that would replace various indirect taxes and make the tax structure simpler, more transparent, and efficient. It wasn’t until years later, however, that this vision was realised.

The Goods and Services Tax (GST) was finally implemented on 1st July 2017 all over India and it replaced various central taxes such as service tax, excise duty, VAT, cess, and surcharge, while also subsuming state taxes like luxury tax, entry tax, entertainment tax, state VAT, and purchase tax.

Let’s take a look at the different kinds of gst in India and understand how these types of gst differ from one another.

Types of GST in India

Following are the four different types of gst in india:

1. Central Goods and Services Tax (CGST)
2. State Goods and Services Tax (SGST)
3. Integrated Goods and Services Tax (IGST)
4. Union Territory Goods and Services Tax (UTGST)

But before we dive deeper into each of these different types of gst in India in more detail, you should know about inter-state and intra-state transactions.

• Inter-state Transactions – These are the types of transactions that take place between two different states. For example, if a company in Tamil Nadu sells goods to a consumer in Kerala, the transaction is considered an inter-state transaction.
• Intra-state Transactions – On the other hand, if a transaction is carried out within a state, it is considered an intra-state transaction. For example, a company in Manipur sells goods to a consumer in Manipur.

1. Central Goods and Services Tax (CGST)

As the name suggests, the Central Goods and Services Tax (CGST) is levied by the central government. These types of gst in India are only applicable to intra-state transactions, and the revenue goes straight to the central government.

Different types of goods and services fall under different GST slabs based on factors such as their necessity or luxury status. These slab rates are determined by the GST Council. Here are the types of gst percentage:

• 5% CGST – This rate is applicable to essential goods, like tea, sugar, and edible oils.
• 12% CGST – This rate is applied to standard goods and services such as butter, ghee, and processed foods.
• 18% CGST – A higher rate is applied to more premium goods and services like ice cream and capital goods.
• 28% CGST – The highest rate, which is reserved for luxury goods and services such as air conditioners and cars.
• Some products, generally consumables for daily use, are exempt from GST. These include items such as milk, bread, eggs, and newspapers.

2. State Goods and Services Tax (SGST)

Just like the CGST, the State Goods and Services Tax (SGST) is charged on intra-state transactions, however, it is the state government that collects this tax. For example, suppose a trader in Assam sold an item to a customer in Assam. Since this is an intra-state transaction, CGST, as well as SGST will be applied. If the GST rate on the item is 28%, the tax will be divided equally between the central and state governments – 14% CGST and 14% SGST.

The GST slabs stay the same, so the types of gst percentage for SGST are also the same as CGST.

3. Integrated Goods and Services Tax (IGST)

Our next different types of gst, the Integrated Goods and Services Tax (IGST), is different from the above two taxes. IGST is applied to transactions that happen between two different states, that is, inter-state. For example, if a merchant in Maharashtra sells a good to a consumer in Uttarakhand, IGST will be charged, which will be collected entirely by the central government. However, the central government is not the sole beneficiary of this tax.

The state where the goods or services are ultimately consumed also receives the state portion of the IGST. In this case, the central government will collect the IGST, and later distribute the state portion of the tax to the Uttarakhand government, where the consumption takes place.

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4. Union Territory Goods and Services Tax (UTGST)

The Union Territory Goods and Services Tax (UTGST) works exactly the way SGST works. The Union Territory Government collects this tax on transactions happening within the union territory. The total GST gets split equally between CGST and UTGST. There are no different types of gst slabs for UTs, and they are subject to the same 5%, 12%, 18%, and 28% rates.

Difference Between the Types of GST

Now that you know about the different types of gst, take a peek at how they differ from each other:

Type of GST/ Factor	CGST	SGST	IGST	UTGST
Collected By	Central Government	State Government	Central Government	Union Territory Government
Applicable On	Intra-state transactions	Intra-state transactions	Inter-state transactions	Transactions within the Union Territory
Who Benefits?	The Central Government	The State Government	The Central Government and the destination State Government (where the goods or services are consumed)	The Union Territory Government
Governed By	CGST Act	SGST Act	IGST Act	UTGST Act

The main difference between the types of gst lies in who collects the tax, who benefits from it, and the nature of the transaction (whether inter- or intra-state).

How GST is Calculated

Not all goods and services have the same GST rate. Depending on the type of goods or services and how essential they are, different GST slabs are applied. Essential goods and services are taxed at lower rates, while luxury and non-essential goods and services are taxed at higher rates. These slabs are – 5%, 12%, 18%, 28%. To calculate GST, one can follow these steps:

• First, find out the GST rate associated with the good or service. The GST rates are subject to change based on decisions made by the GST Council, so make sure your information is up to date.
• Determine the net price of the good or service, that is its taxable value.
• Apply the GST rate by multiplying it by the net price of the product and dividing it by 100.
• The above step will give you the total GST amount. SImply add it to the net price and you’ll get the GST-included price of the product.

For example, if an air conditioner has a net price of Rs. 30,000 and we have to calculate the price including GST, we must first find out the applicable GST rate. As of 2024, air conditioners fall under the highest slab of 28%.

• Amount of GST = 28% of 30,000 = Rs. 8,400
• Total price of AC (GST included) = Rs. 30,000 + Rs. 8,400 = Rs. 38,400

Suppose you bought this AC in Pune and the seller was based in Ahmedabad. IGST will apply here, and the central government will collect the entire Rs. 8,400 as IGST. This amount will then be split, as the central government will retain its portion and transfer the state portion to the government of Maharashtra.

If the seller was based in Mumbai, however, the transaction would become intra-state, and both CGST and SGST would apply. The central government would keep Rs. 4,200 (50%) as CGST, and the state would receive the same amount as SGST.

Conclusion

GST was introduced in 2017 to make the indirect taxation system in India less complex and more efficient. This unified system not only subsumes different taxes like VAT, service tax, and excise duty but also aims to eliminate the cascading effect of taxes and make goods and services cheaper. There are four types of gst in India – CGST, SGST, IGST, and UTGST.

They can be differentiated based on factors such as the type of transaction (inter-state or intra-state), who collects the tax, and who receives it. There are also 5 types of gst slabs – 0%, 5%, 12%, 18%, and 28%. The more essential goods and services are either kept at lower GST rates or are exempt, whereas non-essential and luxury items are taxed at higher rates so that more revenue can be generated.