Answer By law4u team
1. What is GST? GST (Goods and Services Tax) is a comprehensive indirect tax levied on the supply of goods and services across India. It is destination-based, meaning the tax goes to the state where the goods or services are consumed, not where they are produced. GST replaced multiple old taxes like VAT, service tax, excise duty, and luxury tax. Under GST, there are three main types of tax components: 2. CGST (Central Goods and Services Tax) CGST is the tax collected by the Central Government on intra-state transactions, meaning sales within the same state. Example: If a shop in Delhi sells goods to a customer in Delhi, the CGST portion goes to the Central Government. It is applied together with SGST on the same transaction. Purpose: To give revenue to the Central Government for intra-state supplies. 3. SGST (State Goods and Services Tax) SGST is the tax collected by the State Government on intra-state transactions (within the same state). Example: A furniture store in Maharashtra sells a table to a customer in Maharashtra. The SGST portion goes to the Maharashtra state government. CGST + SGST = total GST on intra-state sales. Purpose: To give revenue to the state government where consumption happens. 4. IGST (Integrated Goods and Services Tax) IGST is applied on inter-state transactions, meaning when goods or services are sold from one state to another. Example: A manufacturer in Tamil Nadu sells goods to a shop in Karnataka. The supplier charges IGST, which is collected by the Central Government, but later shared between the origin state (Tamil Nadu) and the consuming state (Karnataka). IGST ensures smooth flow of credit between states and avoids double taxation on interstate trade. Purpose: To manage interstate trade efficiently and share revenue between states. 5. How CGST, SGST, and IGST Work Together Intra-state sale (within same state): Total GST = CGST + SGST Example: ₹1000 sale with 18% GST CGST = ₹9% of ₹1000 = ₹90 → goes to Central Govt SGST = ₹9% of ₹1000 = ₹90 → goes to State Govt Inter-state sale (between different states): Total GST = IGST only Example: ₹1000 sale from Gujarat to Rajasthan at 18% GST IGST = ₹18% of ₹1000 = ₹180 → collected by Centre and shared with states 6. Key Points to Remember CGST + SGST = for intra-state IGST = for inter-state The system is designed to avoid double taxation and ensure smooth flow of input tax credit Businesses can claim credit of GST paid on purchases to offset tax liability on sales.
