Introduced in 2017, GST has replaced several indirect taxes, bringing more uniformity to the tax system. Bringing all the indirect taxes under one umbrella has successfully eliminated cascading taxation while decreasing the number of tax regulations an individual must meet.
Understanding GST and its types is important because it directly impacts you as a consumer or a business entity.
If you have always been curious about GST and its types, this blog is for you. We will discuss the meaning of GST, the types of GST, its applications, and more.
What is GST?
Before we move to the types of GST, let’s first understand what exactly GST means and what are its main objectives.
To begin with, GST stands for “Goods and Service Tax”. It is a destination-based indirect tax imposed by the government on the supply of eligible goods and services. It is a category of tax that is levied on a majority of goods and services meant for domestic consumption.
GST is added to the final price of the item and is paid by the consumer. Note that this tax is collected and submitted to the government by the business involved in the transaction.
What is the Purpose of GST?
Apart from simplifying the tax system, GST has many other objectives. Some of them are listed below:
- To reduce tax cascading effect.
- To implement a single tax structure.
- To boost the economy of the country.
- To boost revenue generated by the government.
- To lower prices of services.
- To broaden the tax base.
What Type of Taxes are Replaced with GST?
Some of the taxes that the GST has replaced include:
- Value-added Tax (VAT)
- Entry Tax / Octroi
- Luxury Tax
- Tax on Lottery
- Central Excise Duty
- Central Sales Tax
- Additional Excise Duty
- Service Tax
- Purchase Tax
- Entertainment Tax
Categorization of Types of GST
As discussed above, GST is levied on goods and/or services that are intended for domestic consumption. It means there can be two types of transactions under which taxes are levied.
- Inter-state Transactions: This transaction takes place between two Indian states.
For example, if you are a business owner supplying goods from Delhi to consumers in Maharashtra, GST will be applicable. Here, the tax will be collected and shared between the Central government and the Maharashtra government, which is the state of consumption.
- Intra-state Transactions: As the name suggests, these transactions are carried out within the same state.
Continuing with our above example, if you supply goods within Delhi, the tax collected in this type of transaction is divided between the Delhi municipal government and the central government.
Different Types of GST
Now that you know how GST is categorized, it’s time to talk about the different types of GST in detail.
Based on the nature of the transaction, GST is classified into three categories as follows:
- SGST: The state government imposes State Goods and Service Tax, or SGST in case of intra-state transaction of goods as well as services.
- CGST: The central government imposes the Central Goods and Services Tax in case of intra-state transaction of goods and services.
- IGST: IGST stands for Integrated Goods and Service Tax. It is levied on the interstate transactions of goods and services. Further, the state and central government collect and share the GST.
- UGST: The Union Territories (UTs) levy UGST or UTGST in case of intra-state (or within the UT) supply of goods and services. This type of GST is shared between the union territory and the central government.
These are the main GST categories. You can learn more about other income tax concepts and plan your tax liabilities better.
Difference Between GST Returns Types: SGST vs. CGST vs. IGST vs. UGST </h2>
| Parameters | SGST | UGST | CGST | IGST |
| Collection Authority | State Government | Union-territory Administrator | Central Government | Central Government |
| Purpose | To generate revenue for the state government. | To generate revenue for the administration of a union territory. | To generate revenue for the central government. | To generate revenue for the central government. |
| Applicability | Within the same state. | Within the Union Territory. | Within the same state/ multiple states | Within two states/a state and a UT/ |
| Rate of GST | Decided by the state government. | Decided by the UT. | Decided by the central government. | Decided by the governments of the involved states along with the central government. |
Application of GST and its Types
The following examples show the current applications of types of GST in India:
Example 1: SGST
Suppose you purchase goods in Delhi from a Delhi-based seller for ₹10,000. Since the applicable GST rate is 18%, the amount will be equally divided between SGST and CGST in this scenario. Hence, the final price of the goods becomes ₹11,800 after adding 9% SGST and 9% CGST.
As you can see, ₹1,800 is the total GST amount, which the state and central government will share with ₹900 each.
Example 2: CGST
For the same scenario described in Example 1, ₹900 worth of CGST will be collected by the central government.
Example 3: IGST
You purchase goods worth ₹10,000 in Delhi from a seller in Gujarat. The applicable GST, in this case, will be IGST. If the GST rate is 18%, the final price of goods will become ₹11,800. The central government will collect this IGST amount of ₹1,800. Note that this amount will be later shared between the central government and the consumer state.
Who is Liable to Pay GST Returns Types?
The following are the individuals who are mandated to pay GST to the government:
- Taxable individuals and businesses
- Registered taxpayers
- Suppliers of goods and services
- E-commerce operators
- Agents supplying goods and services on behalf of a manufacturer or supplier
- Individuals registered under GST are also liable to pay taxes under the reverse charge mechanism.
Types of Goods and Services Exempted from GST Payment
There are certain types of goods and services that have been exempted from GST. It means, no GST or any other tax will be levied on such goods or services. These include the following:
- Food: Vegetables, fruits, and eggs, meat, fish, cereals, etc.
- Tools or Instruments: Wheelchairs, agricultural tools, etc.
- Raw Material: Raw silk, wool, jute fibre, handloom fabrics, etc.
- Services: Public transport, healthcare,education, agricultural services, insurance, banking, etc.
- Others: Newspapers, books, journals, vaccines, stamps, maps, etc.
Is There Any GST on Stocks?
Yes. Stock market investments are also a subject of GST, just like other goods and services. It means you need to pay the applicable GST on the purchase of a stock. Besides, it is also applicable to tax-saving investment options such as health insurance or other savings schemes.
If you are planning to invest in the stock market, a guide on the best long-term stocks to buy will help you make an informed decision.
Summary
The introduction of the GST framework has truly simplified the tax system of the country. Instead of paying different types of indirect taxes, you just have to pay the GST applicable to your transaction.
If you need any other investment or income-tax-related information, it is advisable to get in touch with a reputed SEBI registered advisory. We hope the above information on the GST categories and their applicability reduces the confusion surrounding this crucial taxation topic.
FAQs on Types of GST in India
What is the full form of GST?
GST stands for Goods and Services Tax.
What are the four types of GST?
The four different types of GST in India are State Goods and Services Tax (SGST), Central Goods and Services Tax (CGST), Integrated Goods and Services Tax (IGST), and Union Territory Goods and Services Tax (UTGST).
What is the input tax credit?
Input Tax Credit (ITC) allows businesses to claim the tax they have paid for their business operations. It allows them to reduce their overall tax liability.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.