The transition of India to a single indirect tax regime in 2017 based on the Goods and Services Tax (GST) was a paradigm change in the Indian fiscal system. It consolidated a maze of state and central taxes, including excise duty, service tax, VAT, CST, and others into one, destination-based tax. The heart of such a structure is CGST (Central Goods and Services Tax) which is a tax levied by the Central Government on intra-state transactions.
However, CGST is not only a type of tax. It is one of the main pillars of Indian fiscal federalism in GST. In order to comprehend the complete working of the GST regime in India, it is imperative to have a proper understanding of the concept, mechanism, compliance structure, as well as the evolving legal framework of CGST.
In this blog, we are going to do just that!
Understanding CGST: Meaning and Concept
CGST is the abbreviation of Central Goods and Services Tax, which is charged on the supply of goods and services in a specific state or Union Territory, as defined in the CGST Act, 2017. This act was enacted on 1 st July 2017 and is administered by the Ministry of Finance, Government of India.
The dual GST model means that GST is charged by both Centre and State on the same transaction. In intra-state supply of goods or services:
- The Central Government charges CGST.
- The Governments of respective States/UT collect SGST (or UTGST in Union Territories).
This parallel tax structure maintains the fiscal independence of both these tiers of Government.
Example: If a manufacturer in Tamil Nadu sells furniture to a local retailer in Tamil Nadu worth ₹1,00,000 at an 18% GST rate, the tax components will be:
- CGST @ 9% = ₹9,000
- SGST @ 9% = ₹9,000
Objectives of CGST
The CGST regime was introduced not merely to collect revenue but to serve broader economic and administrative goals:
- Unified Taxation Structure: By removing overlapping taxes like Central Excise and Service Tax, CGST promotes tax uniformity across India.
- Revenue Rationalization: CGST ensures a predictable and stable revenue stream for the Centre by capturing a share of domestic consumption taxes.
- Minimizing Cascading Effect: One of the primary purposes of CGST is to eliminate the tax-on-tax structure that plagued the previous indirect tax regime.
- Improved Tax Compliance: Through mandatory invoicing, digital return filing, and automated reconciliations, CGST fosters transparent business operations.
- Ease of Doing Business: With standardized rates and procedures, CGST contributes to India’s effort to simplify taxation and attract investment.
Scope and Applicability of CGST
CGST applies to:
- Supplies of goods and / or services within the state
- E-commerce operators under certain circumstances (as directed in Section 9(5) of the CGST Act)
- Reverse charge mechanism (RCM) transactions in which, the recipient, rather than the supplier, is liable to pay tax
The following situations are outside the scope of CGST:
- Inter-state transactions, which fall under the ambit of IGST
- Exports, that are zero-rated under Goods and Services Tax
- Exempted and nil-rated goods or services, such as education services, unprocessed food grains and healthcare
- Petroleum products and alcohol, which are constitutionally kept outside Goods and Services Tax as of now
Rate Structure Under CGST
The CGST rate is equivalent to half of the applicable Goods and Services Tax (GST) rate. As of now, the standard GST rate slabs include:
| Total GST Rate | CGST Component | SGST/UTGST Component | Common Examples |
| 0% | 0% | 0% | Fresh vegetables, milk, salt |
| 5% | 2.5% | 2.5% | Edible oils, packaged food |
| 12% | 6% | 6% | Processed foods, cellphones |
| 18% | 9% | 9% | Goods or services such as Furniture, iron and steel products, IT services |
| 28% | 14% | 14% | Automobiles, ACs, tobacco products |
These slabs are periodically reviewed by the GST Council, headed by the Union Finance Minister, and consisting of State Finance Ministers, to provide revenue relief and to respond to popular inputs.
How CGST is Collected and Shared
Under GST, the place of supply rule determines whether a transaction is intra-state (CGST + SGST/UTGST) or inter-state (IGST). Once a transaction is considered intra-state, both CGST and SGST are charged concurrently.
Primary collection principles:
- Both these taxes are charged on the value of transaction (Section 15 of the CGST Act).
- The supplier charges the entire GST (CGST + SGST) to the recipient and pays the corresponding parts to the Centre and State through the GST portal.
- All taxpayers should file returns while showing proper bifurcation of applicable taxes.
The portion of the Centre is not shared with the State and vice versa. The revenue collected as CGST entirely accrues to the Centre, and SGST to the State.
Input Tax Credit (ITC) Under CGST
The Input Tax Credit (ITC) mechanism is one of the transformative characteristics of the GST regime as it only levies tax on the value addition at each stage.
Under CGST rules:
- ITC on CGST can be availed by businesses on purchases of goods or services that are used in the business operations.
- ITC on CGST can be used as follows:
- To pay the CGST liability
- In the event of excess, to pay the IGST liability
- It cannot be used for paying SGST or UTGST.
Conditions for claiming CGST ITC:
- Must have a valid tax invoice
- Receipt of goods or services
- The supplier has deposited the tax levied
- The supplier has filed the relevant returns (GSTR-1 or GSTR-3B)
- ITC has been shown in the GSTR-2B return filed by the recipient
Failure to meet any of these could result in businesses losing their ITC claim, which has major working capital implications.
CGST Compliance and Return Filing
Compliance in CGST is based on proper and regular filing of returns. The registered taxpayers have to follow either the monthly or quarterly filing system, which involves:
- GSTR-1: Details of outward supplies (monthly)
- GSTR-3B: Monthly summary of outward and inward supplies
- GSTR-9: Annual return
- GSTR-9C: Reconciliation statement for taxpayers over ₹5 crore turnover
Late filing attracts penalties:
- ₹100 per day per Act (CGST + SGST = ₹200/day), capped at ₹5,000 per return
- Interest @ 18% p.a. on delayed tax payment
Besides returns, businesses must keep an invoice-wise transaction record, issue e-way bills on inter/intra-state movement of goods worth above 50,000, and e-invoicing norms (which are now compulsory for companies with a turnover of over 5 crores).
Recent Amendments and Updates in CGST Law
The CGST system is dynamic and is updated on a continuous basis through notifications, circulars and annual budgets. Some of the important recent changes are:
- High-risk applicants in certain states are required to undergo biometric authentication (so as to impede false registration).
- Restrictions are imposed on ITC claims, unless appear in GSTR-2B (via Rule 36(4)).
- Blocking of GSTR-1 filing in case GSTR-3B of the preceding period is pending.
- Special process under Section 148 for transactions in certain sectors (such as real estate, lottery and so on).
- Simplified zero-rated supply refund for exporters with bank account and Aadhaar authentication requirements.
Taxpayers should be in touch with CBIC notices or contact their GST practitioners on a regular basis.
Challenges Faced in CGST Implementation
Despite its ambitious goals, CGST implementation has faced several structural and operational challenges:
- Technology Glitches: The GSTN portal has had multiple downtimes, especially during return filing due dates.
- Frequent Rule Changes: Over 1,000 notifications/circulars have been issued since 2017, confusing small businesses.
- Refund Delays: Exporters and inverted duty structure taxpayers face bottlenecks in receiving refunds, affecting liquidity.
- Classification Disputes: Ambiguity around HSN codes and service definitions leads to interpretational disputes.
- Litigation Spikes: Advance rulings and contradictory GST Appellate Authority decisions have led to legal uncertainty.
Efforts are being made to rationalize laws and improve grievance redressal, but full stabilization may take time.
Impact of CGST on Businesses and Consumers
For Businesses:
- Improved Supply Chain Efficiency: No check-posts or entry taxes across states.
- Reduced Tax Incidence: Elimination of cascading taxes and availability of ITC.
- Ease of Compliance: Unified returns and digital infrastructure (albeit complex at times).
For Consumers:
- Transparent Pricing: MRP now includes a uniform GST, replacing multiple hidden taxes.
- Stable Tax Burden: In most cases, prices have stabilized due to ITC and rational tax slabs.
- Better Accountability: Mandatory tax invoices and digital trails help reduce malpractice.
In general, CGST, along with SGST and IGST, is a game-changer in the way India approaches indirect taxation, which is now more transparent, efficient, and business-friendly.
The Bottom Line
CGST is a pillar of the dual GST model in India, as it is the taxation authority of the Centre in internal trade. It has aided in rationalizing the indirect taxation system of India, enhancing digitization, and formalizing the economy.
Learning CGST is necessary not only to comply with the tax law but also a requisite part of financial strategy – whether you are an MSME, a large company, or a startup. As the rules continue to change and regulatory attention intensifies, updating yourself with the CST regulations is not only desirable, but it is also essential.
