Goods and Service Tax (GST) is an indirect tax that is imposed on the manufacture, sales and consumption of goods and services uniform across the nation. Said to be as one of the biggest tax reforms of the post independence era, GST has amalgamated all the indirect taxes like VAT, excise, entertainment tax and other local taxes.
GST has eliminated double taxation, tax on tax and multiplicity of taxes and has brought much relief to traders and common man alike.
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CGST is imposed by the Central government and is payable to the Centre. CGST subsumes all central taxes like Central Excise duty, sales tax, service tax, countervailing duty (CVD), special additional duty (SAD), additional excise duties, excise duty levied under the medical and toiletries preparation act and other indirect taxes. The applicable GST rate for goods and services is equally divided among CGST and SGST.
Taxes under SGST are imposed by the state or union territory and is applicable to all goods and services wherever the transaction happens. The SGST is levied on all states, and two union territories Delhi and Puducherry as they have their own legislature, along with the CGST. The SGST subsumes State VAT, Central sales tax, Luxury tax, etc.
In GST, there are two types of taxes, namely intrastate and interstate taxes which are levied on the supply of goods and services by the central and state governments, respectively. In addition, within the Union Territories, there is a separate tax called Union Territory GST according to the UTGST Bill. The state GST will not be applicable.
The UGST is levied on all the seven Union Territories within India. They are:
As Delhi and Puducherry are known as semi-states and have their own legislature, the state GST is only levied and not the UTGST. This is in line with the Constitution’s definition of “states”, where any union territory that has its own legislature is a state.
Here when a trade supplies goods within the states of Delhi or Puducherry, the central and state GST shall be applied. If the supply happens from Delhi or Puducherry to another state or a union territory then the interstate GST shall be applied.
The tax that is levied on the interstate supply of goods and services is known as IGST. Earlier, the trade or commerce between the states was regulated as per the Central Sales Act 1956 and it was then replaced by the IGST Act. IGST is applicable for both - goods and services that are imported into India and exported from India. Exports would be zero rated and the tax will be equally divided among the Central and State government.
The GST Compensation Bill was passed on August 2018 to provide compensation for states that might have faced any loss in revenue due to GST implementation. Under this act, the central government levies a GST Compensation Cess on the supply of certain goods and services and the receipts from the cess go to the GST Compensation Fund. This amount is then used to compensate the states for any loss in their revenue due to GST. After five years from the date, the state enforces the SGST, any unutilized money in the Fund is dispersed in such a way that 50% goes to the states in proportion to the total revenue; the remaining 50% goes to the centre’s pool of taxes.
If at any time during the transition period, there is any unutilized amount in the Fund, then 50% of it will be distributed between the states in proportion to their revenue in a base year. The remaining half will go to the centre’s pool of taxes.
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