What is CGST & SGST? Key Differences Between Them

GST, or Goods and Services Tax, is a taxation system in India that applies to the sale of goods and services. Every business enterprise must register to GST to run smoothly. Any business running without GST is illegal and must pay penalties.

Under the GST guidelines, the Central Government collects different types of GST depending on the type of transaction. If the sale is taking place within a state, it is called an intrastate transaction, and both CGST and SGST are applicable. In the following sections, you will find the full form of SGST and CGST, learn what they are, and how they are different from each other.

What is the Central Goods and Service Tax (CGST)?

The CGST full form is Central Goods and Service Tax. The Indian Government levies it on all transactions of goods and services within a state. The CGST rate is equal to SGST, and both are applicable based on products. It replaces all prior central taxes, including service tax, customs duty, and central excise duty. So, as a business owner, if you want to sell a product to a buyer within your state, you must pay both taxes.

CGST Example With Calculation

To understand how Central Goods and Services Tax (CGST) works, here’s an example: As a business owner, you sell a product for ₹12,000. The GST rate for the product is 18%, so the total GST is ₹2,160 (18% of ₹12,000). For sales within the state, CGST and SGST (State GST) each make up half of the total GST. So, CGST is ₹1,080 (9% of ₹12,000), which is half of ₹2,160.

Calculation of CGST

GST = Value of Goods x GST rate / 100

= ₹12,000 x 18% / 100

= ₹2,160

CGST = Total GST amount / 2 (assuming equal CGST and SGST rates)

= ₹2,160 / 2

= ₹1,080

What are the State Goods and the Service Tax (SGST)?

The SGST full form is State Goods and Service Tax. The Indian Government levies it for all goods sale and purchase within the state. It replaces all prior state taxes, including the VAT, luxury tax, sales tax, entertainment tax, state cess, entry tax, and surcharge. The state government is the beneficiary of the revenue earned through SGST. So, if you are a business owner selling products within a state, you must pay both taxes in equal distributions.

SGST Example With Calculation

Let's look at an example to understand how State Goods and Services Tax (SGST) works. Imagine you own a bakery store in Delhi and sell a cake for ₹10,000 to a customer in the same state. The GST rate for cake is 5%, which includes both Central GST (CGST) and SGST.

In this case, the SGST rate would be 2.5% (half of the total 5% GST rate). To calculate the SGST amount:

Calculation of SGST

SGST = (SGST rate/100) × Sale value

= 10,000 × (2.5/100)

= ₹250

So, in this sale, you would charge the customer ₹250 as SGST, which the state government would collect.

How SGST is Collected

SGST is collected by the State Governments. It is also levied on the sale of goods and services within a state. The SGST rate varies from state to state. For example, in Maharashtra, the SGST rate is 2.5% for most goods and services. If you buy a product worth ₹100 in     Maharashtra, you would pay ₹2.50 as SGST.

What is the difference between CGST and SGST?

In India, both state and central governments can impose taxes on the products or services produced in the country. Based on the tax-imposing and collecting authority, GST laws are applicable under two categories within a state:

CGST: The Central Government levies the CGST on all intra-state movement of goods and services

SGST: The State Government levies the SGST on all intra-state movement of goods and services.

The following table highlights the key difference between CGST and SGST:

Also Read: What is GST (Goods & Services Tax)? Meaning & Types of GST Returns

Benefits of SGST for Businesses

Business owners can benefit from SGST in various ways:

• Contributes significantly to the start-up and entrepreneurial opportunities within the state.
• Eases the process of doing business while supplying products or services within the state borders.
• Improves the taxation system while minimising corruption and providing greater transparency.
• Makes the logistics more efficient.
• Reduces the costs involved in doing business inside the state.
• Makes it easier than ever to set up a start-up.
• Provides better opportunities for business expansion and scalability.
• Makes the taxation system more business-friendly.
• Gives tax credit on purchases.

Things to Keep in Mind as a Business Owner

Here are a few key considerations you must keep in mind as a business owner in India:

• GST Registration: GST registration is compulsory for all businesses, whether you supply goods or services. You must apply for GST registration to avoid penalties if your annual turnover exceeds a certain limit. Although some business owners are exempt from registration, they can still register for GST voluntarily.
• Different GST Slabs: You will mainly find four tax slabs of GST based on different product types. They are categorised under 5, 12, 18, and 28% tax slabs.
• GST Return Filing: As a business owner, you must file your GST returns using the official portal.
• Easier Taxation: The uniform taxation system that GST has brought in India has made it easier to pay your taxes.
• Compliance Rating: GST compliance rating is important, as it identifies companies that regularly follow GST guidelines.
• CGST and SGST Rates: 2.5% SGST and CGST are applicable on household necessities like sugar, spices, edible oil, coffee, tea, sweets, drugs, coal, etc. 6% rates are applicable to computers and processed food. For toothpaste, soap, capital goods, industrial intermediaries, and hair oil, 9% CGST and SGST rates are applicable. For luxury items like premium cards, air conditioners, refrigerators, high-end motorcycles, aerated drinks, and cigarettes, 14% CGST and SGST rates are applicable.

Also Read: GST And It's Various Facets

Who is Liable to Pay CGST and SGST?

The following entities are liable to pay CGST and SGST:

• Businesses: Businesses that sell goods and services are liable to pay CGST and SGST.
• Suppliers: Suppliers of goods and services are responsible for paying CGST and SGST on their sales.
• Distributors: Distributors of goods and services are also liable to pay CGST and SGST.
• Manufacturers: Manufacturers of goods are liable to pay CGST and SGST on their sales.
• Importers: Importers of goods are liable to pay CGST and SGST on the value of the goods imported.

Key Points

• Businesses must register for GST and obtain a GSTIN (Goods and Services Tax Identification Number) to pay CGST and SGST.
• Businesses must file GST returns and pay CGST and SGST on a regular basis.

Conclusion:

CGST and SGST are two different types of GST taxes the Central and State Governments impose, respectively. They are applicable based on the value of products and services moving within a state. The SGST goes to the State Government, and the CGST goes to the Central Government. Businesses should understand the difference between CGST and SGST and comply with the regulations when filing returns.

Frequently Asked Questions

1. What is CGST and SGST percentage?

Business owners must pay CGST and SGST in equal percentages. For instance, if 18% GST is applicable, it consists of 9% CGST and 9% SGST.

2. Who will pay CGST and SGST?

In intrastate transactions, the seller collects CGST and SGST from the buyers. Then they deposit CGST to the Central Government and SGST to the State Government.

3. Who controls CGST?

CBEC, the Central Board of Excise and Customs, determines and administers CGST and other indirect taxes in India.

4. What is the CGST and SGST full form?

The CGST full form is Central Goods and Services Tax, while the SGST full form is State Goods and Services Tax.

5. What is the basic difference between SGST and CGST?

SGST (State Goods and Services Tax) is collected by the state government, while CGST (Central Goods and Services Tax) is collected by the central government.

6. What is the difference between gstr 2a and 2b?

GSTR-2A is an auto-populated statement of inward supplies, while GSTR-2B is a newly introduced consolidated statement. The main difference between GSTR-2A and GSTR-2B is that GSTR-2B provides a more comprehensive view of the taxpayer's inward supplies.