Midnight of June 30 is annexed for Goods and Services Tax roll out in India. Ahead of the much-anticipated roll out, we put forward nuances of GST which will let you understand it in best way possible. There are three components of taxes that will be under GST. They are – SGST, CGST and IGST.
The components of GST are designed according to the federal structure of India. Both Centre and States will simultaneously impose GST across the value chain. The GST will be levied on every supply of goods and services. The cross utilization of CGST and SGST would not be allowed except in the case of inter-State supply of goods and services under the IGST model.
# State Goods and Services Tax (SGST)
States would impose and collect the State Goods and Services Tax (SGST) on the transactions happening within the state. The credit of SGST paid on inputs would be allowed for paying the SGST on output. The SGST will replace the these taxes which are currently in practice in state - State VAT, Central Sales Tax, Entertainment and Amusement Tax (except when levied by the local bodies), Taxes on lotteries, betting and gambling.
# Central Goods and Services Tax (CGST)
The taxes that Centre would levy and collect are called Central Goods and Services Tax (CGST). The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Cross utilization of credit of CGST between goods and services would be allowed. The CGST would be replacing these taxes which are currently in practice - Central Excise duty, Additional Duties of Customs (commonly known as CVD), Special Additional Duty of Customs (SAD), Service Tax.
# Integrated Goods and Services Tax (IGST)
Under inter-state transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution. In rough terms, IGST can be calculated by adding CGST to SGST. The IGST structure has been prepared to ensure seamless flow of input tax credit from one State to another.
The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST.
The importing dealer will claim a credit of IGST while discharging his output tax liability (both CGST and SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST.