The Goods and Services Tax (GST) in India was a historical transformation of the multi-layered and complicated indirect tax regime in the country. GST sought to facilitate ease of doing business and the creation of a seamless national market by converging a broad range of central and state taxes into a single tax regime.
In this consolidated structure there exists a special mechanism, called UTGST- Union Territory Goods and Services Tax, that is specifically tailored to Union Territories that lack their own legislative assembly. Although UTGST is not as frequently mentioned as CGST (Central GST), SGST (State GST), or IGST (Integrated GST), it is an important component to the tax harmonization between the different territories of India that are administratively diverse.
This blog is a detailed discussion on UTGST, what it is, its scope, how it works, and how it differs from SGST and what it means to businesses with operations in Union Territories.
Introduction to UTGST
India has 28 states and 8 Union territories (UTs). The major difference between the states and the Union Territories is the structure of governance. Most states have their individual legislatures, but some of the Union Territories are directly under the Central Government. This distinction in administration is important in tax.
In the dual GST model:
- Intra-state supplies are subject to SGST by states
- Centre charges CGST on the same transaction
But what about the UTs where there is no legislature?
Well, in this case, UTGST is substituted as the state component of GST..
UTGST is imposed together with CGST on intra-Union Territory supplies of goods and services. It also makes sure that the businesses that run in the UTs pay their share to the public exchequer, despite the lack of a local government.
Understanding UTGST: Meaning and Definition
UTGST (Union Territory Goods and Services Tax) is a tax imposed under the Union Territory Goods and Services Tax Act, 2017. It is applicable to the intra-territorial supply of goods and services within Union Territories which do not have their own legislative assemblies.
Legislative Backing:
- Parliament has enacted the rules under Article 246(4) of the Constitution
- The Act was implemented on 1 st July 2017, when the GST was implemented nationally
Purpose:
- Serves as the counterpart of SGST in UTs
- Imposed on all supplies within UT besides CGST
- Collected and administered by the Central Government
The Indian government is able to guarantee uniformity and equity in tax across all jurisdictions by replacing a missing state mechanism with UTGST.
List of Union Territories Where UTGST Applies
UTGST applies to Union Territories without their own legislative assemblies. As of 2025, these are:
- Chandigarh
- Lakshadweep
- Andaman and Nicobar Islands
- Dadra and Nagar Haveli and Daman and Diu (merged into one UT in 2020)
- Ladakh
These UTs do not have their own elected legislative bodies, which distinguishes them from other UTs like Delhi and Puducherry.
UTs Where SGST Applies Instead of UTGST:
- Delhi
- Puducherry
- Jammu & Kashmir (post-reorganization)
These territories have legislatures and hence operate similarly to states under the SGST mechanism.
How UTGST Works Under the Dual GST System
India’s GST structure follows a dual model where both Centre and State (or UT) levy tax on the same transaction. The tax is split into:
- CGST: Central Goods and Services Tax
- SGST/UTGST: State/UT Goods and Services Tax
Intra-UT Supply:
If a supply occurs within a Union Territory, the applicable taxes are:
- CGST
- UTGST
Example:
Let’s say a restaurant in Port Blair (Andaman & Nicobar) serves a local customer.
- If the applicable GST rate is 18%:
- CGST = 9%
- UTGST = 9%
Both components are levied and collected separately and deposited into respective Consolidated Funds—Centre and Union Territory.
Inter-State or Inter-UT Supply:
When a supply moves from a Union Territory to a different State or UT, IGST (Integrated GST) is levied.For instance, goods shipped from Chandigarh to Rajasthan attract IGST, not CGST + UTGST.
UTGST vs SGST: Key Differences
Though UTGST is structurally and functionally similar to SGST, the governing bodies, administrative control, and fund allocation differ.
| Parameter | UTGST | SGST |
| Applicable In | UTs without legislatures | States and UTs with legislatures |
| Governing Act | UTGST Act, 2017 | SGST Act (respective state laws) |
| Administered By | Central Government | State Government |
| Collection & Allocation | Central Government → UT Consolidated Fund | State Government → State Consolidated Fund |
| Revenue Usage | For Union Territory’s public services | For state-level development and services |
| Legal Status | Enacted by Parliament | Enacted by respective state assemblies |
Rate Structure and Taxability Under UTGST
UTGST follows the same rate slabs as CGST and SGST, ensuring uniform tax rates across India.
Common GST Rate Slabs:
- 0% – Essential items like fresh fruits, milk, education services
- 5% – Common-use goods such as footwear, packaged food, small restaurants
- 12% – Processed foods, business-class rail travel, cellphones
- 18% – Standard goods/services such as computers, hotel stay (₹1,000–₹7,500)
- 28% – Luxury items, SUVs, tobacco, aerated drinks
Example:
A resort in Ladakh charging ₹9,000 per night must levy:
- CGST: 14%
- UTGST: 14%
- Total GST: 28%
These taxes are not additional, but part of the standard GST rate.
Input Tax Credit (ITC) Under UTGST
Input Tax Credit (ITC) under UTGST allows registered businesses to offset the tax they pay on purchases against the tax they owe on sales.
Utilization Order of UTGST Credit:
- First used to pay UTGST liability
- Then used to pay IGST liability
- Cannot be used to pay CGST
Cross-Utilization Not Permitted:
- CGST cannot be used to pay UTGST, and vice versa
Example:
- UTGST Paid on Purchase: ₹5,000
- UTGST Payable on Sale: ₹3,000
- IGST Payable on another transaction: ₹2,000
Here, ₹3,000 of UTGST credit is used to pay UTGST liability, and remaining ₹2,000 is used to offset IGST liability.
This mechanism ensures tax neutrality and avoids double taxation.
Compliance and Registration Requirements for UTGST
UTGST compliance mirrors GST compliance across India, but with specific jurisdictional implications.
Who Needs to Register?
- Businesses with aggregate turnover above ₹20 lakh (₹10 lakh in special category UTs)
- Mandatory registration for inter-state suppliers, casual taxable persons, and e-commerce operators
Key Returns to File:
- GSTR-1: Outward supply details (monthly/quarterly)
- GSTR-3B: Summary return with tax payment
- GSTR-9: Annual return (if turnover > ₹2 crore)
Invoicing & Documentation:
- Must clearly show UTGST and CGST separately
- E-way bill required for movement of goods beyond specified limits
Penalties for Non-Compliance:
- Late fee: ₹50–₹100 per day of delay (capped)
- Interest: 18% per annum on delayed payment
- Notice under GST Act: If mismatches or frauds detected
Challenges and Practical Implications of UTGST
Whereas UTGST has been able to standardize tax regimes in India, its application presents some unique challenges, particularly in low-infrastructure or remote regions.
Common Issues Faced:
- Digital divide: In many UTs such as Lakshadweep or Andaman, internet connectivity is a problem that hinders e-filing.
- Lack of awareness: A major number of small businesses remain unaware of the implication of UTGST and the necessary compliance requirements.
- Inadequate local support: Some of the small UTs may not have a lot of tax advisory or consultancy infrastructure..
For Businesses Operating Pan-India:
- Separate GSTINs must be applied for each UT or State.
- State-wise accounting is also required to segregate ITC and be audit ready.
Nevertheless, the advantages of UTGST beat the obstacles, especially because of:
- An unified GSTN portal
- Streamlined credit operations
- Uniform taxation in the whole country
Final Thoughts:
UTGST forms an integral piece of India’s GST puzzle. Although frequently under the shadow of CGST, SGST, and IGST, it is a fundamental part of the process of providing fiscal balance to Union Territories that are directly governed by the Centre. Even where there are no local legislatures, UTGST will allow the territories to engage in the GST system on equal terms.
In the case of businesses that are located in Union Territories, learning UTGST is not just an optional exercise, but it is a requirement of compliance. The enterprises should follow the UTGST rules and claim the rightful ITC and have transparent records to enjoy the full benefits of the GST framework.
You could be a business in Chandigarh, a hotelier in Andaman, or a logistics provider in Dadra & Nagar Haveli, but with the understanding of how UTGST operates, you would not only be compliant but also optimized in the long-term view of fiscal efficiency.
