CGST: India's Intrastate Tax levied on Goods and Services

CGST: India's Intrastate Tax levied on Goods and Services

In 2017, India introduced the Goods and Services Tax (GST) to make taxes simpler. It replaced many indirect taxes with one single tax. A key part of GST is the Central Goods and Services Tax (CGST). This article will guide you on CGST, its purpose, and its role within GST.

Understanding CGST

•      Definition: CGST stands for Central Goods and Services Tax. The Indian central government taxes goods and services sold within a single state.

CGST replaced old central taxes like excise duty, surcharges, and cesses. This updated the tax system by removing the need to pay multiple levies on a single transaction.

•      Revenue Collection: The revenue collected through CGST goes directly to the central government's treasury.

Objectives of CGST

The introduction of CGST, along with the broader GST structure, addressed several problems in the earlier tax system:

Previously, the supply chain could tax goods and services multiple times, but now it is removing double taxation. CGST, working with SGST (State Goods and Services Tax), helps prevent this by ensuring a single tax point for intrastate transactions.

•      Reduced Tax Burden: By combining different taxes, CGST can lower the overall tax burden on certain goods and services.
•       Simplified Compliance: Compared to the pre-GST era, GST (including CGST) offers businesses a more updated compliance process. Businesses must now deal with fewer tax filings and a more standardized tax structure.
•       Effective Tax Collection: CGST provisions allow for penalties and fines in case of tax regulation violations. Businesses can also implement tax recovery mechanisms to prevent tax defaulters from continuing their business activities.

Key Features of CGST

It Applies to all taxable intrastate supplies of goods and services.

•       Self-Assessment: Businesses are responsible for calculating and paying the CGST amount due on their taxable supplies.
•       Reduced Tax Burden: This can lead to lower tax rates for certain goods and services compared to the pre-GST regime.
•       Penalty & Fines: Violations of CGST regulations can result in penalties and fines.
•       Tax Recovery: Provisions exist to recover unpaid CGST dues from businesses that default on their tax obligations.

Understanding CGST vs IGST

Under the GST system, CGST applies within a state, while IGST applies between states for goods and services transactions.

CGST: Levied on intrastate supplies (within a state)

•      IGST: Levied on interstate supplies (between states)

Why are there Three GST Categories? - The Federal Structure

India's federal structure allows both central and state governments to levy taxes. GST simplifies government taxes by dividing them into three categories. The central and state governments levy ST and SGST for intra-state transactions. Typically, businesses divide the tax burden equally between CGST and SGST.

•      IGST (for interstate): The central government levies and collects IGST on interstate transactions. It combines the elements of CGST and SGST.