CGST and SGST levied simultaneously on goods or services

Introduction:

It has been rightly said ‘Necessity is the mother of all the inventions’. This statement doesn’t only apply to technology but to the normal environment in which we are living. Earlier we had many taxes in our country like customs, service tax, sales tax, etc. which are being subsumed in GST. On 1st July 2017 GST was implemented in our county which was a single tax levied on all the goods and services. It subsumed all 17 taxes in it.

GST has reduced the cascading effect of taxes by allowing input tax credit. It has reduced the difficulties faced by the people and the burden of taxes on them.

GST has three components but in this article, we will be looking at its two components only which are listed below 

• CGST (Central Tax): A tax levied by the Central government on all the taxable goods and services.

• SGST (State tax): A tax levied by the State Government on all the taxable goods and services.

Note

• CGST (Central tax) and SGST (State tax) are not levied on the exempted goods and services which are mention in the GST law and hence are out of the purview of GST. 

• CGST and SGST are not levied on those transactions that are below the threshold limit.

• CGST (Central tax) and SGST (State Tax) are levied on the same price or value of the goods and services.

• CGST and SGST are not levied on the inter-state supply of goods and services. The location of the supplier and the recipient across the country doesn’t affect it.

How CGST (Central goods and service tax) and SGST (State goods and service tax) work in our economy?

CGST and SGST are chargeable on the intra-state supply of goods and services that means a particular good or service is taxed under CGST and SGST when the supplier and the recipient are in the same state. There is only one and the same GST for a particular good or service that is set up by the GST council.

Note:

All the suppliers and recipients have to be registered under GST Registration for making taxable supplies of goods, services, or both.
When GST is levied on any Intra-state supply of a good or service, it is further equally divided into CGST and SGST that goes to the Central government and State government respectively. The reason for a nomenclature was to facilitate the division of the tax revenue into the two heads.

Let us take an example to have a better understanding of the above system. Suppose the GST rate is 18% in this example.

A computer-software company in Mumbai supplies its services to Information Technology Company based in Pune at Rs. 2000. As both the companies are in the same state so CGST and SGST are applicable to them supplied service under Intra-state supplies. The GST taxed on the service is Rs. 360 which is 18% of Rs. 2000. The 18% GST will be equally divided and will go into the pockets of the Central government and the State government as 9% each. The software-company will charge this GST (SGST+CGST) from the IT Company and will pay Rs. 180 each to the respective governments as tax.

Note:

The Computer-software company cannot use the credit of CGST to pay SGST and vice-versa. The credit of CGST on the purchase (example: inputs) can only be used for paying CGST while the credit of SGST on the purchase (example: inputs) can only be used for paying SGST.