IGST vs CGST: Meaning and Key Differences
Shreyansh Singh, an IIT Kanpur alumnus, has eight years of experience in the finance industry. He has spent 5 years at American Express developing mid to long-term strategies for multiple markets including US, Europe and India. Shreyansh currently leads Growth and Strategy initiatives at Pice.
- 30 Aug 24
- 9 mins
IGST vs CGST: Meaning and Key Differences
Shreyansh Singh- 08 Mins
- 30-08-24
Key Takeaways
- GST Structure: GST in India is divided into CGST, SGST, IGST, and UTGST, each applicable based on the type and location of the transaction.
- CGST: Central Goods and Services Tax is levied by the central government on intra-state transactions, sharing tax revenue with the state government.
- IGST: Integrated Goods and Services Tax is applied to inter-state transactions and imports/exports, with revenue shared between central and state governments.
- Tax Credit Utilization: Input tax credit for IGST can be used against all GST categories (CGST, SGST, IGST), while CGST credit can only be used against CGST and IGST, not SGST.
- Tax Collection: IGST is collected for inter-state transactions and deposited with the central government, while CGST is collected for intra-state transactions and shared with the respective state government.
To file accurate tax returns, one has to know the difference between CGST and IGST. The Goods and Services Tax first came into the spotlight when the Government of India introduced the concept of ‘One Nation, One Tax’ in 2017. It was introduced as a new indirect tax regime that simplifies both intrastate and interstate transactions.
In this guide, we will walk you through the key differences between CGST and IGST, highlighting other associated details that you need to know.
Introduction to GST
The Goods and Services Tax (GST) is a form of indirect tax levied on the supply of products and services in India. Its introduction originally aimed to simplify the tax structure by replacing multiple indirect taxes such as excise duty, luxury tax, entry tax, service tax, Value-Added Tax (VAT) and more.
Since its inception, all taxpayers have witnessed the GST Act as a common domestic indirect taxation law. As per this Act, the Government of India charges tax from each registered taxpayer at each point of sale. However, the GST rates vary based on the nature of the business and the annual turnover.
What Is CGST?
CGST is the abbreviation used for Central Goods and Services Tax. The tax amount raised under this GST category is divided between the central and state governments. Under CGST, the central government receives its tax share on intra-state supply transactions.
What Is IGST?
IGST is the short form for Integrated Goods & Services Tax. All interstate supplies of goods and services are considered for IGST calculation. Taxpayers can find the details about the same in the IGST Act of 2017. This type of GST has no counterpart, unlike CGST which applies to intrastate transactions. The concerned authorities impose a single taxation - IGST, to acknowledge the transaction of services and goods that cross state lines.
Types of GST Tax
The Goods and Services Tax has been divided into four parts based on the origin and time-to-time destination of the taxable supplies. These include:
- State Goods and Services Tax (SGST)
- Central Goods and Services Tax (CGST)
- Integrated Goods and Services Tax (IGST)
- Union Territory Goods and Services Tax (UTGST)
To ensure proper tax compliance, it is crucial to identify the applicable GST categories for interstate and intrastate transactions. Let us discuss the nature of these transactions in detail.
GST Applicable for Inter-state Transactions
For interstate exchange of goods and services, only a single taxation regime is valid. IGST is the sole taxation system for all the supplies involving two or more states/union territories. However, it is crucial to remember that the provisions stated in the IGST Act, of 2017 are open to amendments over time. As of now, all exports are zero-rated under IGST. In addition, the tax shares are distributed between the central and respective state governments.
GST Applicable for Intra-state Transactions
Under the current tax regime, the CGST, SGST and UTGST are levied for intra-state supply of services and goods. The state government applies equal portions of SGST and CGST for all intrastate supplies. For example, if you are a seller who has successfully sold a product in West Bengal, both SGST and CGST will be applicable since it is within the same state of the supply's origin.
As per Section 8 of the CGST Act, under no means the rate of CGST can exceed 14%. Moreover, the tax amount collected under CGST can only be set off against the IGST input tax credit or CGST, but not any SGST.
Similar to SGST, UTGST is implemented in Union Territories without a dedicated legislature, serving the same purpose. Having said that, you will find UTGST applicable in places like Dadra & Nagar Haveli, Andaman and Nicobar Islands, Ladakh, and Daman & Diu. As places like Jammu & Kashmir, Puducherry and Delhi have their own legislature thus SGST law is applied there.
Why Is GST Split Into SGST, CGST and IGST?
India is a federal country where all the state governments as well as the central power hold authorities to levy taxes on supplies. Both parties need tax revenue to execute their responsibilities. Thus, the GST framework has been devised to make their job manifold easier. To ensure registered taxpayers can benefit from credit against each other, three primary types of tax are exercised, which include: SGST, CGST and IGST.
What Determines the Applicability of IGST and CGST?
The nature of GST applicable to a transaction depends on whether it involves intrastate or inter-state supply.
- IGST or Integrated Goods and Services Tax must be collected by a seller from each of their buyers when a specific transaction is assumed to be interstate. In simple words, when the location of the supply and the address of the supplier involves two or more separate states then IGST gets applied. In addition, all imports and exports of supplies are also subject to IGST.
- Similarly, when the supplier is located in the same state as their customer then the seller must levy both SGST and CGST on the price tag. The CGST part goes to the Central Government while the respective State Government collects the SGST.
Key Differences Between IGST and CGST
You may refer to the parameters discussed below to understand the major differences between IGST and CGST:
- Applicability of the Tax
IGST applies to transactions of goods and services where the address of the supplier is in a different state when compared to that of the buyer. Whereas CGST applies to an intra-state supply of goods and services.
- Tax Levying and Collecting Authority
The Central Government levies CGST. On the other hand, CGST and SGST are two Indian taxation categories that go towards the State Government funds.
- Input Tax Adjustment Permissible
Input credit allowed for IGST can be used against all GST categories (CGST/ IGST/ SGST). Contrarily, the ITC of CGST can only be utilised against IGST or CGST and not for credit of SGST.
How Are IGST and CGST Collected?
To navigate commercial operations smoothly and to abide by tax compliance regulations, it is essential to know the GST collection process.
Here’s how the collection procedure varies for IGST and CGST:
For inter-state transactions, IGST uniformly incorporates both state and central tax components. Businesses engaging in interstate transactions must acquire IGST at the prescribed rate. Next, the amount is deposited electronically to the Central Government's account within a designated filing timeframe. CGST is deposited to the respective government body after the relevant filing period. All businesses that carry out intrastate commerce and have a turnover of more than ₹40 lakhs must collect this tax.
Who is Liable to Pay GST?
Suppliers of taxable goods and services operating in India are liable to furnish GST. In certain cases, the taxation liability may shift to the buyer, for instance in case of imports or other notified supplies, this rule becomes active.
In addition, government departments that issue vendor payments of more than ₹2.5 lakhs per contract are liable to deduct TDS. Finally, e-commerce operators are also specified to collect GST, irrespective of their net revenue. Upon collecting the amounts, these parties deposit it with the government to maintain business compliances.
Conclusion
The current GST framework aims to simplify the taxation system for Indian business owners and taxpayers, but it is crucial to understand the differences between CGST, IGST and SGST. The key difference between CGST and IGST depends on the address of the supplier and the buyer. Apart from this, there are a few other differences in regulations in terms of the utilisation of input tax credits.
💡 If you want to pay your GST with Credit Card, then download Pice Business Payment App. Pice is the one stop app for all paying all your business expenses.
FAQs
What is the main difference between CGST and IGST?
How is the GST rate determined for a transaction?
Can input tax credit (ITC) be used across different types of GST?
Who is liable to pay GST?
What are the penalties for non-compliance with GST regulations?
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