by India follows a Dual GST Model, which means that both the Central Government and the State Governments have the authority to levy and collect Goods and Services Tax (GST) on the supply of goods and services. This model was adopted to maintain the federal structure of the country while ensuring a uniform taxation system. The dual GST framework allows both levels of government to share tax revenue and participate in tax administration. Under this system, GST is divided into Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Integrated Goods and Services Tax (IGST), and Union Territory Goods and Services Tax (UTGST). The dual model promotes cooperative federalism, eliminates cascading taxes, and creates a common national market.
Dual GST Model
Dual GST Model refers to a taxation structure where both the Central Government and State Governments simultaneously levy GST on the same transaction. Unlike a single GST model, where only one government collects tax, the dual model ensures that taxation powers are shared between the Centre and the states.
This structure was adopted because India is a federal country where taxation powers are constitutionally divided. The model preserves the fiscal autonomy of states while ensuring uniformity in indirect taxation. Both governments collect revenue from taxable transactions occurring within their jurisdiction.
The dual GST model balances national interests with state-level financial requirements. It ensures that states continue to receive revenue from indirect taxation while participating in the broader GST framework.
Example: When a product is sold within a state, both CGST and SGST are charged on the transaction.
Framework of GST (Dual Model)
1. Central Goods and Services Tax (CGST)
CGST is the portion of GST collected by the Central Government on intra-state supplies of goods and services. Whenever a taxable transaction occurs within a state, the Central Government receives its share of GST in the form of CGST.
The revenue collected through CGST is used by the Central Government to finance national development programs, infrastructure projects, defense expenditure, healthcare initiatives, and other public services. The CGST Act, 2017 governs the administration and collection of this tax.
CGST applies only to intra-state transactions and is levied simultaneously with SGST. The rate of CGST generally represents half of the total GST rate applicable to a transaction.
Example: If goods worth ₹10,000 attract GST at 18%, CGST of 9% (₹900) is collected by the Central Government.
2. State Goods and Services Tax (SGST)
SGST is the component of GST collected by the State Government on intra-state supplies of goods and services. It is levied alongside CGST whenever a taxable supply takes place within a state.
The revenue collected through SGST belongs entirely to the respective State Government. It helps states finance public services such as education, healthcare, infrastructure, transportation, and welfare schemes. The SGST Act enacted by each state governs its administration.
The dual collection of CGST and SGST ensures that both levels of government receive revenue from economic activity occurring within the state. This arrangement preserves the financial independence of states.
Example: On a sale of ₹10,000 with GST at 18%, SGST of 9% (₹900) is collected by the State Government.
3. Integrated Goods and Services Tax (IGST)
IGST is levied on interstate supplies of goods and services, imports, and certain cross-border transactions. It is collected by the Central Government under the provisions of the IGST Act, 2017.
The primary objective of IGST is to facilitate smooth interstate trade while ensuring proper distribution of tax revenue between the Centre and consuming states. Businesses pay IGST on interstate transactions, and the revenue is subsequently apportioned between governments according to prescribed rules.
IGST eliminates the complexities associated with interstate taxation under the previous tax regime and supports the destination-based principle of GST.
Example: If a company in Maharashtra sells goods to a customer in Bihar, IGST is charged on the transaction instead of CGST and SGST.
4. Union Territory Goods and Services Tax (UTGST)
UTGST is levied on intra-union territory supplies of goods and services in Union Territories that do not have a legislative assembly. It functions similarly to SGST but applies specifically to eligible Union Territories.
UTGST is collected along with CGST on transactions occurring within such territories. The revenue supports administrative and developmental activities in Union Territories. The UTGST Act, 2017 governs its operation.
This component ensures that Union Territories receive their share of GST revenue while maintaining consistency within the GST framework.
Example: A sale occurring in Lakshadweep attracts CGST and UTGST instead of CGST and SGST.
5. Intra-State Supply under Dual GST
An intra-state supply occurs when the location of the supplier and the place of supply are within the same state or union territory. In such cases, GST is divided equally between CGST and SGST (or UTGST).
Both the Central and State Governments collect their respective shares simultaneously. This arrangement ensures revenue sharing and maintains the federal nature of taxation.
The dual levy on intra-state transactions is one of the defining characteristics of India’s GST framework.
Example: A retailer in Bihar selling goods to a customer within Bihar charges both CGST and SGST on the invoice.
6. Interstate Supply under Dual GST
An interstate supply occurs when the supplier and the place of supply are located in different states or union territories. In such transactions, IGST is levied instead of CGST and SGST.
The Central Government collects IGST and subsequently distributes the appropriate share to the destination state where consumption occurs. This mechanism supports the destination-based nature of GST and simplifies interstate trade.
Interstate taxation under GST is more efficient than the earlier system because it avoids multiple tax layers and facilitates seamless credit flow.
Example: A supplier in Karnataka selling goods to a buyer in Tamil Nadu charges IGST on the transaction.
7. Input Tax Credit Mechanism
The Input Tax Credit (ITC) mechanism is an essential component of the dual GST framework. It allows businesses to claim credit for GST paid on purchases and inputs used in business operations.
The ITC system ensures that tax is levied only on value addition at each stage of the supply chain. It eliminates cascading taxes and reduces the overall tax burden. Businesses can utilize available credits against their GST liabilities according to prescribed rules.
This mechanism promotes transparency, efficiency, and compliance within the GST system.
Example: A manufacturer can claim credit for GST paid on raw materials while calculating tax liability on finished goods.
8. Revenue Sharing Between Centre and States
A key feature of the dual GST model is the sharing of tax revenue between the Central and State Governments. For intra-state transactions, CGST goes to the Centre and SGST goes to the state. For interstate transactions, IGST revenue is distributed according to destination-based principles.
This arrangement ensures that both levels of government receive a fair share of tax revenue. It strengthens cooperative federalism and promotes balanced fiscal development.
Revenue sharing also helps states maintain financial stability after the subsuming of various state-level indirect taxes into GST.
Example: GST collected on interstate sales is ultimately apportioned to the state where consumption occurs.
9. Promotion of Cooperative Federalism
The dual GST model promotes cooperative federalism by involving both the Central and State Governments in tax administration and policy formulation. The GST Council serves as a platform for joint decision-making on tax rates, exemptions, procedural reforms, and compliance requirements.
This collaborative approach ensures that national and state interests are balanced. It enhances coordination, reduces conflicts, and promotes uniformity in taxation across the country.
The dual model reflects India’s federal structure while supporting economic integration and tax efficiency.
Example: Decisions regarding GST rate revisions are taken collectively by the GST Council, which includes representatives from both the Centre and the states.
