What are The Meaning of IGST, SGST, CGST & UTGST with Input Credit Adjustment?

There was lack of uniformity in the tax system in India due to different tax rules for each state.  Due to which tax evasion became a big challenge for the government.  Internal trade and commerce also faced great challenges.  Therefore, the government resorted to the GST regime as a part of the tax reform effort to bring uniformity in the tax system of the country.  After this GST regime came into existence on 1st July 2017, although there was some complexity in tax management, but due to GST, uniformity, consistency, transparency have been included in the tax system of the country.  The increase in the revenue of the country will also give positive results.

GST i.e. Goods and Services Tax is determined on the basis of location of buyer and seller of goods and services.  CGST, SGST, UGST rates are used under GST.

What is CGST?

CGST stands for Central Goods and Services Tax is applicable only on the supply of goods and services within the limits of a particular state.  This tax is controlled by the central government.  Such trade is classified as inter-state supply.  For example, if a businessman of Uttar Pradesh sells any goods or services to another businessman of Uttar Pradesh, then he will have to pay CGST to the central government on this transaction.  At present, the rate of CGST in the country is same as that of SGST.  Both these taxes are collected simultaneously.

What is SGST?

SGST means State Goods and Services Tax.  This tax is levied only when the transaction is concluded within the limits of a particular state.  This tax is for the state government and its rate is same as CGST.  SGST has replaced various state level taxes like lottery tax, luxury tax, VAT, purchase tax, sales tax.

What is UTGST?

UTGST- Union Territory Goods and Services Tax .  This tax is available to the union territory within whose limits the transaction takes place.  This tax is of the same type as SGST.  This tax along with CGST and an equal amount is paid for those transactions which are done within the territory of the Union Territory.  Since Delhi and Puducherry have assemblies, SGST can be implemented there.  But the rest of the union territories do not have a legislature, so UTGST is applicable only on transactions executed within the limits of those union territories.

Also, Read; FAQs on SGST, CGST, IGST and UTGST

What is IGST?

IGST stands for Integrated Goods and Services Tax.  When a deal is concluded between persons of two or more states for goods or services, IGST is to be paid which goes to the Central Government.  IGST is levied by the Central Government but the tax is equally shared by both the Center and the States.  Deals concluded with any other country also come under IGST.  Transactions of any goods or services from Special Economic Zones (SEZs) are also included in IGST.  The system of IGST has been made only to reduce disputes between the states and for judicious distribution of tax.

How is the adjustment of taxes done in the input  tax credit system?

In the GST tax system, the tax burden ultimately falls on the person who consumes that goods or services.  But it happens that every time the goods or service is purchased before reaching that last person, he has to pay GST.  But the input credit system has been arranged by the government so that the GST paid at the intermediate level is returned.  In the input credit system, the credit goes on getting recorded in the account of the person in lieu of the GST paid.  Later, when the GST collected on the sale has to be deposited with the government, then automatically the credit deposited in the account is deducted from it.

How many types of input credit are there?

The first is SGST input credit, which is available in lieu of SGST paid to the state government in case of a transaction between two businessmen within the same state.

The second is CGST input credit, which is available in lieu of payment made to the central government i.e. CGST on the transactions of two businessmen within the limits of the same state.

The third one is IGST Input Credit.  Which are received in lieu of IGST to be paid by the buyer when a deal is done between the businessmen located in the border of two different states.

What is the rule for payment of input tax credit?

1. Input tax credit received in lieu of SGST, CGST and IGST all can be used for payment of IGST.

2. Input tax credit against CGST and IGST can be used for payment of CGST.

3. Input tax credit against SGST and IGST can be used for payment of SGST.  But the point to be noted here is that the input credit of CGST and SGST cannot be used for payment of output tax of each other.  That is to say, the input credit received against SGST cannot be used for payment of CGST.  Similarly, input tax credit received against CGST cannot be used for payment of SGST.

India's biggest tax reform i.e. GST system is strengthening its foundation in the country.  With time, the confusion regarding GST is also getting reduced.  The reduction in manufacturing and production cost is being realized by subsuming various indirect taxes in GST.  Tax evasion has been curbed.  There is transparency in tax administration.  It is expected that the GST system will play a very effective role in the economic prosperity of the country.

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