Types of GST in India Explained 

The Indian Parliament imposed the act, known as the ‘Goods and Service Tax (GST) Act’ on 29th March, 2017. It came into effect on 1st July, 2017. It replaced pre-existing indirect taxes in India, such as excise duties, service taxes, VAT, etc. There are four types of GST in India, such as CGST, SGST, IGST and UTGST. Read this blog to learn in detail about the GST structure of India. 

Definition of GST

GST is a value-added and direct tax on the goods and services supplied for domestic consumption. Businesses add the GST amount to the final prices of products or services. Customers who buy products in India pay the inclusive amount of the GST. The businesses or sellers then forward their GST portion to the government. 

How Are GST Types Determined?

The types of GST in India are determined by the nature of transactions and then tax is levied accordingly:

Intra-State Transactions

It is a transaction that takes place within a state. For example, a business in Mumbai sells iron rods to a customer in Mumbai. Here GST is divided between the Maharashtra Government (origin state) and the Central Government. 

Inter-State Transactions

When a business transaction happens between two different states of India, it becomes an inter-state transaction. For example, a business in Mumbai sells 2 tons of sand to a customer in Chhattisgarh.  Now, the Central and Chhattisgarh Government (Consumption state) divides the GST amount. 

What Are the Types of GST in India?

There are 4 types of GSTs applicable across India, such as:

• Integrated Goods and Services Tax (IGST)
• Central Goods and Services Tax (CGST)
• State Goods and Services Tax (SGST)
• Union Territory Goods and Services Tax (UTGST)

An Overview of Types of GST Applicable in India

Here is a quick overview of types of the GSTs applicable across India:

Integrated Goods and Services Tax: Under the GST tax regime, IGST applies to trade between two states. The revenue collected from IGST is distributed between the state and central government based on the destination state. Businesses engaged in interstate transactions must comply with IGST regulations and file tax returns accordingly. 

One of the key benefits of IGST is the availability of input tax credit, which prevents cascading taxes and helps businesses save costs at every stage of the supply chain. Additionally, IGST simplifies the tax structure by replacing multiple state taxes with a single tax, which in turn, also makes interstate trade more efficient.

Central Goods and Services Tax: CGST is one of the 4 types of GST in India and is collected by the central government on intrastate transactions. It operates under a dual GST system alongside SGST, where both central and state governments levy taxes on the same transaction within a state. 

Businesses can benefit from the input tax credit on CGST paid, allowing them to offset it against IGST or SGST liabilities. While CGST rates are standardised across India, they vary depending on the type of product or service. Once you know the applicable rate, use the GST calculator to determine the total tax payable accurately.

State Goods and Services Tax: SGST is levied by the state government on the intrastate transaction value of goods or services supplied, as defined under Section 15 of the SGST Act. The revenue collected from SGST goes directly to the respective state government. 

For example, if a trader in West Bengal sells goods worth ₹2,000 to a customer within the same state, both CGST and SGST will apply as it is an intrastate transaction. If the GST rate is 18%, it will be split equally into 9% CGST and 9% SGST. The total amount charged will be ₹2,360, with ₹180 collected as CGST and ₹180 as SGST which will be contributed to WB State Government. 

Union Territory Goods and Services Tax: UTGST, one of the 4 types of GST in India, is applicable in union territories like Chandigarh, Dadra and Nagar Haveli, Daman and Diu, Lakshadweep and the Andaman and Nicobar Islands. It is levied on intrastate supplies of goods and services, with revenue collected by the respective union territory administration. It replaces SGST in Union Territories and is levied alongside CGST on intrastate transactions within these territories.

Which Taxes Were Replaced by GST?

The Indian government implemented GST with the aim of ‘One Nation, One Tax’. To eliminate multiple indirect taxes, GST consolidated different state and central taxes as follows:

Difference Between Types of GST

Find the differences between the types of GST in India in the table below:

Who Is Obligated to Pay GST? 

The following must pay different types of GST in India:

• GST-registered people need to pay taxes under a mechanism of reverse charge
• A business supplying goods whose annual turnover exceeds ₹40 lakh in Normal Category states or ₹20 lakh in Special Category states
• Service providers whose annual turnover exceeds ₹20 lakh for Normal Category states and ₹10 lakh for Special Category states
• E-commerce businesses 
• Agents supplying services or goods on behalf of suppliers or manufacturers

GST Exempted Goods and Supplies 

There are a few types of goods that do not fall under any type of GST in India:

• Raw materials like handloom fabric, cotton, raw silk, unprocessed wool, raw jute, etc. do not fall under GST.
• Food items like vegetables, fruits, cereal, meat and fish do not fall under the GST tax regime.
• The Indian government exempts instruments like agricultural tools and tools for differently abled persons from GST. 
• Also, miscellaneous items like journals, vaccines, newspapers, books, maps, non-judicial papers, etc. do not fall under GST.

Final Word 

Goods and Services Tax (GST) is a value-added, indirect tax levied on the supply of goods and services for domestic consumption. The types of GST in India that are applicable depend on the nature of the transaction between businesses, with 4 main categories in place. The Indian GST Council has set a maximum GST rate of 28%, primarily applicable to luxury goods and services.