by Goods and Services Tax (GST) in India follows a dual model, meaning that it is administered by both the central and state governments. Under this dual structure, the GST is divided into three components: Central GST (CGST), State GST (SGST), and Integrated GST (IGST). Each component serves a specific purpose and is applicable to different types of transactions within the country.
While the dual GST model has streamlined the indirect tax system in India, it’s important to note that challenges and refinements may continue to be addressed as the system evolves. The Goods and Services Tax Council, which consists of representatives from both the central and state governments, plays a crucial role in decision-making related to GST, including rate revisions and policy changes.
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Central Goods and Services Tax (CGST):
- Administration:
CGST is administered by the Central Government of India.
- Applicability:
CGST is applicable to intra-state transactions, meaning transactions that occur within a single state or union territory.
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Revenue Collection:
The revenue collected through CGST goes to the central government, and it is used to meet the central government’s financial requirements.
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State Goods and Services Tax (SGST):
- Administration:
SGST is administered by the State Government of each respective state or union territory.
- Applicability:
SGST is applicable to intra-state transactions, similar to CGST. It is levied on the same transaction but is collected by the state government.
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Revenue Collection:
The revenue collected through SGST goes to the respective state government, helping them meet their financial needs.
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Integrated Goods and Services Tax (IGST):
- Administration:
IGST is administered by the Central Government of India.
- Applicability:
IGST is applicable to inter-state transactions, i.e., transactions that occur between two or more states or union territories.
- Mechanism:
When goods or services are traded between states, IGST is levied. The seller collects IGST on the transaction, and this revenue is then shared between the central and state governments.
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Avoidance of Double Taxation:
IGST is designed to avoid the complexities of dealing with CGST and SGST separately for inter-state transactions. It ensures that the tax is collected by the central government and then distributed to the relevant states.
Example to Illustrate the Functioning of CGST, SGST, and IGST:
Let’s consider a hypothetical scenario where a manufacturer in Maharashtra sells goods to a consumer in Maharashtra:
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Intra-State Transaction (Within Maharashtra):
- CGST:
The manufacturer charges and collects CGST, which goes to the central government.
- SGST:
The manufacturer charges and collects SGST, which goes to the Maharashtra state government.
- Inter-State Transaction (From Maharashtra to Gujarat):
- IGST:
The manufacturer charges and collects IGST on the transaction. The revenue from IGST goes to the central government.
- Distribution:
The central government then distributes the appropriate share of the IGST revenue to the state of Maharashtra (SGST component) and the state of Gujarat.
Advantages of the Dual GST Model:
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Uniformity Within States:
The dual GST model ensures that each state has control over its SGST rates and administration, promoting uniformity and flexibility.
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Avoidance of Double Taxation:
The introduction of IGST for inter-state transactions eliminates the complexities of dealing with separate CGST and SGST components for each state involved in the transaction.
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Clear Revenue Distribution:
The dual model provides a clear mechanism for revenue distribution between the central and state governments, facilitating better fiscal management.
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State Autonomy:
The model allows each state to determine its SGST rates and administration policies, giving them a degree of autonomy in managing their tax affairs.
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Simplified Compliance:
Businesses dealing with both intra-state and inter-state transactions find the dual GST structure more straightforward for compliance, as it involves dealing with CGST, SGST, and IGST.
