This guide explains the four main types of GST in India: CGST, SGST, IGST, and UTGST. It covers how each type is levied—whether for intra-state, inter-state, or transactions within Union Territories—and the roles of central and state authorities in collecting these taxes. Understanding the differences between these GST types will help businesses ensure compliance and manage their tax obligations effectively.
GST is a comprehensive, multi-stage, and destination-based tax introduced in India from 1 July 2017. It brought together the complicated structure of multiple indirect taxes like excise duty, service tax, and value-added tax (VAT) into a single tax regime all over the country. GST charges on the supply of goods and services, structured in a way to bring uniformity and ease to India’s taxation system.
How Many Types of GST Are There in India?
GST in India is divided into four types:
- Central Goods and Services Tax (CGST): Levy by centre on sales to persons in the same state.
- State Goods and Services Tax (SGST): The charge levied by the state government on sales between states.
- Integrated Goods and Services Tax (IGST): The Centre collects it on inter-state sales and shares the amount with the destination-state government and the Centre.
- Union Territory Goods and Services Tax (UGST): It functions exactly as SGST but for union territories.
Understanding the Two Types of GST Transactions
GST transactions are of two types: intra-state and inter-state, meaning that which of the multiple types of GSTs CGST, SGST, UTGST, or IGST shall be applied is determined accordingly.
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Intra-State Transactions
Intra-state transaction: Goods or services are supplied within the same state. Here, GST is bifurcated into two, one being collected by the central government, which is CGST, and the other is SGST or UTGST collected by the respective state or union territory.
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Inter-State Transactions
Inter-state transactions are the supply of goods or services between different states or between a state and a union territory. For these transactions, IGST is levied and collected by the central government, which further shares a part of it with the destination state. This system simplifies inter-state tax collection by centralising IGST for seamless revenue sharing.
Detailed Explanation of Different Types of GST
The four major heads in the GST system of India are CGST, SGST, IGST, and UTGST. All of these are different from one another in their functions within the unified tax structure, to ensure a fair distribution of revenue between the central government and the state/union territory governments.
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Central Goods and Service Tax (CGST)
CGST full form is Central Goods and Services Tax. The CGST is the central government tax on intra-state sales. In this case, the seller and buyer are in the same state. The central government charges as an outgoing percentage of the value of the transaction.
Along with the SGST or UTGST, the amount paid amounts to the total rate of GST. The amount collected by CGST is retained by the central government for financing the central scheme and programs.
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State Goods and Service Tax (SGST)
State GST or SGST is the matching of CGST levied by the state government on transactions which take place within the state.
Similar to the case with CGST, SGST is an ad valorem tax charge expressed as a percentage of the value of the transaction and is to be added to CGST for a complete GST charge on intra-state transactions. Proceeds from SGST directly go to the state government which uses it to fund its projects and services.
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Integrated Goods and Service Tax (IGST)
Full form of IGST is Integrated Goods and Services Tax. IGST is applied to inter-state supplies where goods or services are supplied across the state borders or between a state and a union territory. IGST is applied at the full GST rate without being bifurcated into individual components.
The central government collects IGST and subsequently passes on a part of the revenue collected to the concerned state(s) engaged in the transaction, which will ensure a fair revenue sharing arrangement.
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Union Territory Goods and Service Tax (UTGST)
UTGST full form is Union Territory Goods and Services Tax. In case of intra-territory supplies within union territories, UTGST is applied. Collected by the union territory, UTGST matches with the CGST so that together, the total GST on the transactions makes the effective rate. These tax revenues are used to support infrastructure and public services in these union territories.
GST Rates and Their Application Across Different Types
GST in India is operated through the system of rate slabs and distribution of different types of GST across various GST types to share revenues between the central and state governments equitably.
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Types of GST Percentage
In India, the GST system has four principal slabs of tax rates: 5%, 12%, 18%, and 28%. The 5% rate is usually reserved for essential goods and services, the 18% rate for luxury items, and the 28% rate for certain services. These standard rates help to apply tax uniformly across the nation.
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How do GST Rates Apply in Intra-State and Inter-State Transactions?
For intra-state transactions, the GST rate is divided between CGST which is Central GST and SGST or UTGST, which is Union Territory GST. Each receives a 50% share.
For inter-state transactions, it is the full GST rate paid as IGST by the central government that proceeds to pass on a share of it to the destination state. The structured division cuts down on the complexity of tax collection and gives way to an even balanced share of revenue between the two.
Practical Examples of GST Application
These examples illustrate how CGST, SGST, IGST, and UTGST apply to real-life transactions, henceforth giving tax distribution between the centre and state governments.
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Case Study: Intra-State Transaction (SGST and CGST)
Suppose a Maharashtra trader sells goods worth ₹10,000 within the state. In this case, the 18% intra-state GST would be charged as 9% of CGST and 9% of SGST. That would amount to a total tax of ₹1,800, of which ₹900 would be collected as CGST and ₹900 as SGST.
The amount collected as CGST is retained by the central government, and the amount collected as SGST is retained by the Maharashtra state government. This would ensure the balance in revenue distribution for the intra-state GST regime.
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Case Study: Inter-State Transaction (IGST)
With inter-state trade, imagine the following: a merchant of Maharashtra sells goods for a total amount of ₹ 10,000 to the Karnataka Buyer. The IGST levied is 18% amounting to ₹1,800.
The centre, in this case collects this amount fully as an amount of IGST and pays off revenue percentage from this amount towards Karnataka as a means to ascertain proper revenue distribution of both states involved in an inter-state trade.
GST Compensation Cess
An additional tax levied to assist the states handle the revenue shortfall due to the new GST system, especially those which recorded a decline in revenue under the unified GST regime, is the GST Compensation Cess.
What is the GST Compensation Cess?
There are particular luxury and ‘sin’ goods like luxury cars, tobacco, and coal to which the GST Compensation Cess is applied. It is payable as an additional percentage over and above the standard GST rate applicable to the items concerned.
This cess is applied as compensation to states for any revenue loss in adoption of GST. The cess revenue is pooled by the central government and then shared with states in order to ensure that states meet their envisaged revenue estimates during the transition period of GST; hence, states are able to be fiscally sound.
Taxes Replaced by GST
The GST introduced in India was aimed at unifying a number of indirect taxes prevalent in the country under a single system to simplify indirect tax structures. Such reforms have also replaced the long list of existing taxes that would simplify the entire system and improve efficiency in a more transparent way.
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Indirect Taxes Replaced by GST
Some significant indirect taxes, including:
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- Value Added Tax (VAT): It was the tax levied by state governments on the value addition of goods
- Sales Tax: Now brought under the GST umbrella on sales of commodities within the state
- Excise Duty: GST has done away with the tax levied on the production of commodities except a few
- Service Tax: Imposed on services, now brought under GST for easier service-based taxation
- Luxury Tax: Imposed on luxury goods and services, now covered under GST
- Entertainment Tax: The tax levied by the states on movie tickets and the like activities have been included in the GST
- Octroi: The local tax levied on goods entering a state or city. It has been removed under GST to encourage free movement.
Differences Between CGST, SGST, IGST, and UTGST
The main distinctions between CGST, SGST, IGST, and UTGST define the GST framework. Each of these types of GST has different applications, collecting authorities, and rules for revenue distribution, which means taxes are smoothly and fairly collected across the country.
Comparative Table of GST Types
| GST Type | Collecting Authority | Priority of Tax Credit | Applicable Transactions | Benefiting Authority |
| Central GST (CGST) | Central Government | Priority after IGST | Intra-state transactions | Central Government |
| State GST (SGST) | State Government | Priority after IGST and CGST | Intra-state transactions | Respective State Government |
| Integrated GST (IGST) | Central Government | Priority for inter-state credit | Inter-state transactions | Central and destination State Governments |
| Union Territory GST (UTGST) | Union Territory Government | Priority after IGST | Intra-union territory transactions | Respective Union Territory Government |
Conclusion on Types of GST
CGST, SGST, IGST, and UTGST all have distinct functions under India’s GST regime to facilitate a smooth and streamlined tax system. CGST and SGST apply to sales within the state. The entire goes to the central government, in case of CGST, and the entire to the state, in case of SGST. IGST applies to all inter-state sales.
The central government collects and further distributes between states. It applies to union territories. Proper compliance, efficient tax management, and sound revenue distribution depend on the understanding of these types by businesses and taxpayers, ensuring the success of India’s unified tax system. Consult our top GST expert for more information. Know more about the same from senior GST experts from Vakilsearch.
Frequently Asked Questions on GST Types
How are CGST and SGST different from IGST?
CGST and SGST apply to intra-state transactions (within the same state), where CGST is collected by the central government, and SGST is collected by the state government. On the other hand, IGST is levied on inter-state transactions (between different states) and is collected by the central government, with the revenue later distributed between the central and state governments.
Is UTGST applicable in all Union Territories?
No, UTGST (Union Territory GST) is levied only in union territories which do not have their own legislatures like Lakshadweep and Andaman and Nicobar Islands. Union territories which have their own legislatures like Delhi and Puducherry are liable to SGST as in case of states.
What is the purpose of the GST Compensation Cess?
GST Compensation Cess is a second-line tax levied on luxury goods and 'sin' goods, like tobacco and luxury automobiles. It is for compensating states in case they face revenue loss because of the introduction of GST. The centre collects the cess from them and equips the states with the exact revenue status prior to GST.
How does the GST system ensure equitable tax distribution?
The GST ensures equal intra-state and Central (CGST) and state governments (SGST) collection; inter-state IGST revenues are divided between the central government and the destination state. This way, the states benefit from both local as well as inter-state trade revenue and there is a good revenue-sharing balance.
Which transactions qualify as zero-rated under IGST?
Under the IGST, exports and supplies to the Special Economic Zones are covered under zero-rated supplies. In other words, since GST is not charged on these supplies, the exporter can still claim input tax credits on all the GST paid at the time of production. This would thereby reduce the overall tax burden and support competitive exports.
