With the implementation of the Goods and Services Tax (GST) on 1 st July, 2017, the taxation landscape in India has been transformed forever- a step that has eliminated the multi-tax jungle and introduced a more integrated system. GST in India is not just a single tax, but a framework consisting of four separate taxes, namely, CGST, SGST, IGST and UTGST, each of which has a different purpose in a federal structure.
Knowing the ins and outs of these four types of taxes is a must-do thing in every business, whether you are located in a metro city or a union territory, whether you are providing services locally or selling products to international markets.
So, to get a clear idea of how each of these works, when it is applicable and how it impacts your business, let’s have a closer look at each component in detail.
The Need for GST and its Multicomponent Structure
Prior to GST, India had a complicated multi-layered system of indirect taxes that comprised taxes imposed by Centre and States separately- excise duty, VAT, service tax, octroi, entry tax, CST, etc. The system resulted in:
- Tax on tax (cascading of taxes)
- Multiple tax compliances and registrations
- Inconsistent tax rates across different states
- Logistical horror of inter-state transport of goods
India has adopted a dual GST model to address these problems. Here, the Centre and States impose a tax on the same transaction at the same time.
Why this dual structure?
Because, India is a quasi federal nation, and the Union and State Governments require tax revenue in order to execute their operations.This gave rise to four different types of GST:
- CGST (Central Goods and Services Tax)
- SGST (State Goods and Services Tax)
- IGST (Integrated Goods and Services Tax)
- UTGST (Union Territory Goods and Services Tax)
Central Goods and Services Tax (CGST)
- What is CGST?
CGST is the portion of GST collected by the Central Government on intra-state (within the same state) supply of goods and services.
- Key Features:
- Applicable alongside SGST for local supplies.
- Levied under the Central Goods and Services Tax Act, 2017.
- Rates are typically equal to SGST in intra-state transactions.
- Where does it apply?
When both the supplier and buyer are located in the same state or union territory with legislature (like Delhi or Puducherry), CGST is charged.
- Example:
If a textile manufacturer in Gujarat sells ₹1,00,000 worth of goods to a retailer in the same state at 18% GST:
- CGST = 9% = ₹9,000
- SGST = 9% = ₹9,000
Thus, ₹9,000 goes to the Centre.
State Goods and Services Tax (SGST)
- What is SGST?
SGST is the counterpart of CGST and is collected by the State Government on intra-state transactions.
- Legislative Authority:
SGST is governed by the State Goods & Services Tax Act of each individual state.
- How does SGST work?
In intra-state transactions, the total GST is split equally between CGST and SGST. Each state gets its own SGST share.
- Example:
Using the same Gujarat example:
- ₹9,000 (SGST) is collected by the Gujarat State Government.
This revenue is used for state-level development: infrastructure, health, education, etc.
Integrated Goods and Services Tax (IGST)
- What is IGST?
The Central Government charges IGST on imports/exports and inter-state transactions. It is meant to preserve the tax neutrality of goods and services moving across different states.
- Where does IGST apply?
- Supplier in Maharashtra, buyer in Karnataka.
- Supply of goods to Special Economic Zones (SEZs).
- Import of goods or services into India.
- Sales made by e-commerce operators across state borders.
3. How is IGST distributed?
- IGST is collected by the Centre, then the state portion is transferred to the destination state (where the goods/services are consumed).
- Ensures that consuming states get their rightful share of tax revenue.
4. Example:
An electronics supplier in Delhi sells ₹2,00,000 worth of goods to a buyer in Kerala:
- IGST @18% = ₹36,000
- Entire ₹36,000 is paid to the Centre.
- Later, the State of Kerala receives its share as the consuming state.
Union Territory Goods and Services Tax (UTGST)
- What is UTGST?
UTGST applies to intra-union territory transactions in UTs that do not have a legislature. It is levied together with CGST, similarly to the SGST in states.
- Applicable in these Union Territories:
- Andaman & Nicobar Islands
- Chandigarh
- Daman and Diu
- Dadra and Nagar Haveli
- Lakshadweep
- Ladakh
Note: Delhi and Puducherry follow SGST because they have their own legislatures.
3.Example:
A hotel in Chandigarh charges ₹10,000 for accommodation:
- CGST @9% = ₹900
- UTGST @9% = ₹900
So, ₹1800 is collected as GST, equally shared between the Centre and the UT Government.
Key Differences Between CGST, SGST, IGST, and UTGST
| Parameter | CGST | SGST | IGST | UTGST |
| Levying Authority | Central Government | State Governments | Central Government | Union Territory Administration |
| Applicable On | Intra-state supply | Intra-state supply | Inter-state supply and imports or exports | Intra-Union Territory supply |
| Beneficiary | Centre | Respective State | Centre and consuming State | Centre and Union Territory |
| Law Governing It | CGST Act, 2017 | Respective SGST Acts | IGST Act, 2017 | UTGST Act, 2017 |
| Cross-utilisation of Credit | Can offset CGST & IGST | Can offset SGST & IGST | Can offset IGST, CGST, SGST | Can offset UTGST & IGST |
How These GST Types Affect Businesses in Real Terms
Understanding GST types isn’t just about tax theory—it has practical implications on:
A. Invoicing and GST Return Filing
Every GST invoice must clearly mention whether the tax is CGST/SGST, IGST, or UTGST. This classification affects:
- Return forms (GSTR-1, GSTR-3B, etc.)
- Place of supply rules
- Tax credit eligibility
B. Input Tax Credit (ITC) Management
Incorrect classification may block ITC or cause mismatches in GSTR-2A/2B. Here’s how:
- CGST credit can be used to pay CGST or IGST.
- SGST/UTGST credit can be used for SGST/UTGST or IGST, but not CGST.
- IGST credit is the most flexible—it can be used for IGST, CGST, or SGST.
Proper GST classification is critical for efficient cash flow and compliance.
C. E-Commerce & Interstate Transactions
Companies that sell on Amazon, Flipkart, or their e-stores to consumers in other states need to know about IGST regulations. Also:
- Place of supply rules become crucial.
- Penalties apply for wrong tax collection or incorrect filing.
D. Branch Transfers & Stock Movements
Even the movement of goods within your own branches across states is deemed as a supply and is subject to IGST. Businesses must:
- Track and document inter-branch transfers.
- Maintain accurate GST ledgers.
Final Thoughts:
GST structure in India might seem complicated initially, but it is based on the logic of transparency, uniformity, and collective fiscal responsibility. Separation of GST into CGST, SGST, IGST, and UTGST means that the government is able to provide its due share to the Central and State governments- which is accompanied by a smooth taxation environment enjoyed by the taxpayers.
Understanding the distinction between these types of taxes is not optional to businesses, but rather, a crucial component of compliance, optimisation, and error-free taxation.
Therefore, be it samosas in Surat, SaaS in Sikkim, or machinery in Maharashtra to Manipur- knowing which type of GST will be applicable in your transaction is the first step towards intelligent, sustainable growth.
