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.
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.
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.
You can use the GST calculator to estimate the GST for your business.
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.
Documents required for CGST registration
To comply with CGST regulations, businesses need the following documents for 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.
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.
Additional Read: What is IGST