To replace several other indirect taxes, including state VAT, customs duties, central excise duty, and entertainment tax, the government introduced a new indirect tax regime known as the Goods and Services Tax (GST) on July 1, 2017. People often find it confusing to comprehend this new tax system and how it affects businesses. Therefore, we have thoroughly explained GST and its categories to make it easier for you to grasp.
Simply said, GST is a tax that is applicable on the value added to services and goods at every point along the supply chain. GST comes in four forms: CGST, SGST, IGST, and UTGST. Each category has a different tax rate applicable at the buyer’s end.
Check out the following sections if you are curious about how many different types of GST there are in India.
Let us first learn about the primary reason for implementing this unified tax system to discover the taxes under the GST. Making the Central and State Governments independent of one another is the primary motivation.
By reading on, you learn more about the four different types of GST in India.
CGST stands for Central Goods and Services Tax. It took the place of all prior taxes under the Central Government. Central surcharges & cess and central excise duty are a couple of examples of these taxes. The tax authorities levy CGST on the transportation of goods within a state.
Let us use an example to grasp further what CGST means. A firm manufactures a good in Telangana and sells it within the state. Both SGST and CGST apply to this case. The SGST goes to the Telangana Government and the CGST goes to the Central Government. As the GST council mandates, both State and Central Governments divide this tax equally.
The SGST, or State Government GST, is a form of GST that the State Government collects and applies it on transactions that occur entirely within its boundaries geographically. Previous state taxes such as the value-added tax, state sales tax, and entertainment tax became non-functional.
State Goods and Services Tax, SGST, is a single tax on intrastate supplies of goods and services, excluding alcoholic beverages. The government can also charge it solely on a product’s transactional value, a sum the buyer needs to pay.
Since each State Government has its laws, SGST features may differ from state to state. However, the classification of products and services, taxable events, valuation, and measurement practices are uniform across the country.
The goal of this new tax system is therefore represented by this tax: one nation, one tax.
Integrated Goods and Services Tax, IGST, is a tax that is typically applicable for interstate transactions or transactions that involve two separate states. IGST is imposed on a variety of transactions, including exports and imports (IGST + customs) and supplies of services and products.
According to the IGST Act, the Central Government must collect it. Let us use an example to clarify this.
Assume a West Bengal manufacturer sells goods to a Maharashtra consumer. The Central Government will collect IGST on the transaction value. The Central Government and the consumer state, in this case, Maharashtra, will later split this money.
Why is the consumer state the recipient of the tax rather than the manufacturing state? Because the buyer pays the tax.
Union Territory Goods and Services Tax, UTGST, is a tax on selling goods and services inside Union Territories. It applies to the supply of goods in Andaman and Nicobar Islands, Daman Diu, Lakshadweep, Chandigarh, and Dadra and Nagar Haveli.
The UTGST only applies to Union Territories without a legislature.
Delhi, Puducherry, and even the recently created UTs of Jammu and Kashmir do not have UTGST but SGST. Understanding the meaning of UTGST alone is insufficient. You must know the applicable rates.
In UTs, this tax, which the central government collects, takes the place of the State Goods and Services Tax. As a result, the UTGST percentage is comparable to the SGST rates of 2.5%, 6%, 9%, and 14%.
In addition, it is critical to realize that some goods attract 0% taxation. Meat from fish, birds, and mammals does not attract this tax. Bananas, apples, grapes, and sanitary napkins are other tax-free goods.
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