India’s Goods and Services Tax (GST) system brought a simplified, unified tax regime, replacing a complex web of older indirect taxes. At the heart of this system are three key components: Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), and Integrated Goods and Services Tax (IGST).
Understanding the differences between these three taxes, particularly how their rates are applied, is fundamental for every business owner and consumer in the country. The key factor that determines which tax applies is the location of the transaction.
CGST, SGST, and IGST: The Core Difference
The distinction between CGST, SGST, and IGST boils down to whether a supply of goods or services occurs within a single state or between two different states (or with an import/export).
Feature | CGST (Central GST) | SGST (State GST) | IGST (Integrated GST) |
Applicability | Intra-State transaction (Within the same state/UT) | Intra-State transaction (Within the same state/UT) | Inter-State transaction (Between two states/UTs) or Import/Export |
Levying Authority | Central Government | State Government | Central Government |
Revenue Beneficiary | Central Government | Respective State Government | Centre and the Consuming State share the revenue |
Tax Rate | Half of the total GST rate | Half of the total GST rate | Full GST rate (CGST Rate + SGST Rate) |
Understanding the Rate Structure
The total GST rate for any product or service (e.g., 5%, 12%, 18%, 28%) is fixed. The split of this rate is what changes based on the transaction type.
1. Intra-State Supply (CGST + SGST)
When a seller and a buyer are located in the same state, the total GST is levied as a combination of CGST and SGST, with the total rate being split equally between the two.
Total GST Rate = GST Rate + SGST Rate
Example: 18% GST Rate
- CGST Rate = 9%
- SGST Rate = 9%
The combined 18% is charged, but paid separately to the Central and State governments.
2. Inter-State Supply (IGST)
When a seller and a buyer are located in different states (or in the case of imports/exports), the total GST is levied as a single tax called IGST.
IGST Rate = Total GST Rate
Example: 18% GST Rate
- IGST Rate = 18%
The IGST is collected entirely by the Central Government, which then automatically passes the state’s share to the destination or consuming state. This mechanism ensures a smooth flow of tax credit and simplifies inter-state trade.
Practical Examples of CGST, SGST, and IGST
1. Intra-State Sale (CGST + SGST)
Imagine a manufacturer in Maharashtra sells goods worth ₹10,000 to a retailer who is also in Maharashtra. Since the transaction occurs within the same state, both Central GST (CGST) and State GST (SGST) are applied.
- The manufacturer charges 6% CGST (₹600) and 6% SGST (₹600).
- The total GST collected is ₹1,200 (12% of ₹10,000).
- The Central Government receives the ₹600 for CGST, and the Maharashtra State Government receives the ₹600 for SGST.
- The retailer pays a total bill of ₹11,200.
2. Inter-State Sale (IGST)
Now, consider the same manufacturer in Maharashtra selling the same goods worth ₹10,000 to a buyer located in Gujarat. Since the goods are moving across state borders, only Integrated GST (IGST) is applied.
- The manufacturer charges the full 12% as IGST (₹1,200).
- The total tax collected is ₹1,200.
- This ₹1,200 is initially collected by the Central Government.
- Crucially, the Central Government later settles the state’s portion with Gujarat (the destination/consuming state), ensuring the tax revenue reaches the correct authority.
- The buyer in Gujarat pays a total bill of ₹11,200.
Conclusion:
The structure of CGST, SGST, and IGST is not merely a tax calculation method; it is the backbone of India’s unified economic framework.
By clearly segmenting the tax based on the nature of the transaction—CGST and SGST for local trade to ensure dual revenue collection, and IGST for inter-state commerce to streamline movement and credit flow—the GST regime successfully harmonizes the fiscal autonomy of states with the Centre’s need for a unified indirect tax system.