The implementation of goods and services tax (GST) in India was a landmark tax reform that aimed to simplify the country's complex tax structure. Under GST, all indirect taxes were subsumed into three categories: Central goods and services tax (CGST), State goods and services tax (SGST), and integrated goods and services tax (IGST).
In this article, we will delve into the details of CGST, its features, rules, and the documents required for compliance.
What is CGST?
CGST stands for Central Goods and Services Tax, a tax levied by the central government on the intrastate supply of goods and services. It was introduced under the Central Goods and Services Tax Act, 2017, and applies across India, excluding Jammu and Kashmir. CGST replaces previous central taxes such as service tax, central excise duty, and customs duty.
When goods or services are sold within a state, both CGST and SGST (State Goods and Services Tax) are applied. While CGST is collected by the central government, SGST is collected by the respective state government. The overall tax burden is typically shared equally between the state and the central government.
For instance, if a manufacturer in Maharashtra sells goods within the state, both SGST and CGST are applicable. The revenue from SGST goes to the Maharashtra government, while the central government receives the CGST share.
The rates of CGST are determined by the GST Council, which meets periodically to review and adjust tax rates. This system simplifies the tax structure, making it easier for businesses to comply with regulations, and ensures a more transparent flow of revenue between the central and state governments.
Understanding CGST Act
CGST stands for Central goods and services tax. It is levied by the central government on the intrastate movement of goods and services, i.e., transactions within one state. The Central goods and services tax Act 2017 govern CGST, which applies to the entire country except Jammu and Kashmir. In an intrastate movement, both CGST and SGST are applicable, with the revenues collected going to the central and respective state governments, respectively. For instance, if a manufacturer sells a product within Maharashtra, SGST and CGST will be levied, with revenues shared between the state and central governments.
CGST example
Let’s say a manufacturer in Maharashtra sells goods worth Rs. 10,000 to a retailer within the same state. Under the GST system, two types of taxes apply: CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax). If the total GST rate is 18%, it’s split equally into 9% CGST and 9% SGST.
For this transaction, 9% of Rs. 10,000 is Rs. 900, so the CGST is Rs. 900, and the SGST is also Rs. 900. The manufacturer adds these taxes to the product price, so the retailer pays Rs. 10,000 (for the goods) + Rs. 900 (CGST) + Rs. 900 (SGST), which totals Rs. 11,800.
The Rs. 900 CGST is sent to the central government, while the Rs. 900 SGST goes to the Maharashtra state government. This way, both the central and state governments get their share of the taxes. The GST system makes tax collection simpler and ensures that both state and central governments benefit from sales made within a state.
CGST features
The main features of the Central Goods and Services Tax (CGST) Act, 2017 include:
- CGST is applied to the supply of all goods and services within a single state (intra-state).
- It allows taxpayers to conduct self-assessment to determine the taxes they are required to pay.
- CGST helps to reduce the overall tax burden on various goods and services.
- Penalties and fines may be imposed for violating tax regulations under the CGST provisions.
- The Act enables tax recovery from defaulters by seizing tax arrears, preventing them from selling goods or services until the dues are settled.
The CGST rate is typically equal to the SGST rate, collectively forming a part of the total GST rate. Revenue from CGST is collected by the central government. Additionally, businesses can claim input tax credit for CGST paid on their purchases, reducing their overall tax liability.
CGST rules
The CGST Act requires businesses to adhere to certain rules, including:
- Composition scheme: Businesses registered under the GST composition scheme must issue a supply bill.
- Invoice: Registered businesses must issue a tax invoice for taxable goods and services, each carrying a unique serial number.
- Equal CGST and SGST: CGST and SGST are levied in equal amounts, leading to a combined GST rate. For example, an 18% GST rate would entail 9% CGST and 9% SGST.
CGST slab rates
CGST (Central Goods and Services Tax) rates vary based on the type of goods or services. Essential items like fresh produce are exempt from CGST, while basic necessities are taxed at 5%. Standard goods and services fall under the 12% slab.
CGST Rate |
Description |
Examples |
0% |
Essential goods and services |
Fresh fruits, vegetables, books, education services |
5% |
Basic necessities and services |
Edible oil, sugar, textiles, healthcare services |
12% |
Standard goods and services |
Processed food, computers, hotel accommodation |
18% |
General goods and services |
Smartphones, restaurant services, software, banking services |
28% |
Luxury and sin goods |
Automobiles, air conditioners, tobacco, luxury hotels |
Benefits of central goods and services tax
The Central Goods and Services Tax (CGST) offers several key benefits:
- Streamlined taxation: CGST has simplified the tax system by consolidating multiple indirect taxes into a single tax, making it easier for businesses to manage their tax obligations.
- Input tax credit: One major benefit is that businesses can claim input tax credit. This means they can offset the tax paid on inputs against the tax collected on sales, reducing the overall tax liability.
- Improved compliance: The technology-driven GST system ensures better compliance. The ease of online filing and tracking makes it simpler for businesses to adhere to tax regulations.
- Differentiated taxation: CGST uses multiple tax slabs, allowing different rates for various goods and services. This ensures fair taxation based on product categories.
- Small business relief: Small businesses can opt for the composition scheme, which offers a simplified tax regime with reduced compliance requirements and a fixed tax rate.
- Reduction in tax evasion: The GST system has robust tracking mechanisms that make tax evasion more difficult, ensuring higher compliance.
Overall, CGST has created a uniform, transparent tax system, reducing the cascading effects of earlier taxes and benefiting businesses and consumers alike.
What is the formula of CGST?
The formula for calculating CGST (Central Goods and Services Tax) is straightforward. CGST is calculated as a percentage of the taxable value of goods or services supplied within a state.
The formula is:
CGST = (CGST Rate/100)*Taxable Value
For example, if the taxable value of goods is Rs. 10,000 and the CGST rate is 9%, the CGST amount would be:
CGST = (9/100)*10000 = Rs. 900
This ensures that CGST is collected uniformly based on the value of transactions.
You can use the GST calculator to estimate the GST for your business.
Documents required for CGST registration
To comply with CGST regulations, businesses need the following documents for gst registration:
- Application form: A duly filled application form is essential for CGST registration.
- PAN card: The Permanent Account Number (PAN) card serves as a unique identification for tax purposes.
- Aadhaar Card: Proof of identity, such as the Aadhaar Card, is required.
- Cancelled cheque Leaf: A cancelled cheque leaf is needed for bank account verification.
- Address proof: A valid address proof confirms the business location.
Why are there three categories in GST?
The presence of three categories in GST (CGST, SGST, and IGST) is attributed to India's federal structure, which allows both state and central governments to levy and collect taxes. This federal system aims to streamline taxation while respecting the diverse business layers and levels in the country. For intrastate transactions, both CGST and SGST are levied, while for inter-state transactions, IGST is applicable, combining the rates of CGST and SGST.
CGST plays a crucial role in India's tax framework, facilitating the seamless movement of goods and services within a state. Understanding its features, compliance rules, and the required documents is essential for businesses to ensure smooth operations and adherence to GST regulations. As a significant milestone in India's tax history, GST, including CGST, continues to contribute to the growth and development of the nation's economy.
