CGST vs SGST: Know Key differences between CGST and SGST

The tax structure of India underwent a permanent transition when GST was introduced in 2017, replacing complicated tax systems such as excise duty and VAT. After 8 years, GST has turned to be a critical tax system accepted by almost every organisation and business individuals. In this context, CGST and SGST need to be discussed as both have crucial implications in GST and are often confused. The difference between CGST and SGST may be reflected in their meaning, application, and calculation methods.

Overview of GST (Goods and Services Tax)

Meaning of GST

GST is the abbreviated form of Goods and Service Taxes, an indirect form of taxation implemented at various stages and sources. After the introduction of GST, the tax charging mechanism has become highly simple, and tax evasion has also been reduced. GST was introduced in 2017, and soon, almost 38 lakh businesses shifted to the GST slab, which now has expanded to ₹20.18 lakh crores. The impressive statistics indicate a high degree of compliance and reduced incidences of tax evasion among taxpayers. There are different types of GST, such as CGST and SGST which will be discussed at length later. The basic difference between CGST and SGST will also be illustrated further.

Purpose of GST

In the words of the GST Council, the main purpose of GST is to replace a complex taxation system. GST is an all-inclusive taxation mechanism, designed with the objective that it will reduce the entire complexity of calculating tax at every stage of a transaction. The main objectives of introducing GST are:

• Lowering incidences of tax evasion - GST being an all-inclusive taxation system, reduced cases of tax evasion and hence eliminated the possibility of evading tax credit.
• Creating uniformity - The main purpose of central GST and state GST had been to develop uniformity in taxation structure instead of collecting taxes at various levels.
• Lowering double taxation - One purpose of GST was to lower cases of double taxation such as taxation charged by both the State government as well as the Central government
• Improve economic structure - Another purpose of GST was to improve the economic portfolio of India and accumulate more revenue through single-point taxation.
• Creating a habit of tax compliance - A key purpose of developing GST is to improve tax compliance and induce the habit of proper taxation.
• Developing economic parity - Central GST and state GST were introduced to bring in higher economic parity and reduce inequality with tax charged on central points.

Types of GST

There are essentially four types of GST, these are:

• CGST - This is GST imposed by the Central Government on any intra-state transactions. One example of CGST is the tax the government collects on sales of cigarettes, and air conditioners.
• SGST - SGST is the tax the State government collects on all transactions that occur within the states. The GST charged on the sale of sugar is an SGST example.
• IGST - IGST is GST collected by the government on imports and exports, and is proportionately shared between the central and state government.
• UGST - This GST is charged on any transactions in a union territory.

Calculation of GST

The calculation of GST is essentially simple once you know the slab of CGST and SGST percentage. Here is the formula: Total GST = (Sales price x GST percentage)/100 Net price after application of GST = Sales price + Total GST GST can be calculated also online with a GST calculator. Let’s move to understanding different types of GST now, which will shed light on the difference between CGST and SGST.

What is CGST?

Definition of CGST

Most people have a common query about what is CGST and SGST, which needs the least complicated explanation. CGST is the abbreviated form of Central Goods and Service Tax. CGST primarily means the tax collected by the Central Government on any intra-state transactions.

Tax coverage of CGST

Most goods are covered under GST, except alcohol and liquor meant for human consumption. This is due to the basic reason that the State government derives a higher proportion of tax revenue directly from sales of alcohol.

Calculation of CGST

Here is a simplified calculation of CGST with a basic illustration. For example, a furniture manufacturing company based in Karnataka sells a bamboo-made cupboard worth ₹10,000 to a customer, within Karnataka. The central GST and state GST charged on the cupboard is 6% each respectively, so the company will include 6% CGST on the sales price of the furniture. Original sales price = ₹10,000 CGST amount = 6% of ₹10,000 = ₹600 SGST amount = 6% of ₹10,000 = ₹600 Total GST = CGST + SGST = 600 + 600 = ₹1,200 Total sales value after charging GST = 10,000 + Total GST = 10,000 + 1,200 = ₹11,200 Thus, the Central government will receive ₹600 as the CGST value when the furniture company sells the cupboard for ₹11,200.

Benefits of CGST

• Increased convenience - CGST has been able to compress and consolidate all of the tax slabs into a single tax regime for any intra-state transactions.
• Lowered tax evasion possibilities - Tax evasion has been reduced much with the imposition of CGST, given that CGST is collected at the final point of sales and not at any intermediary levels.
• Higher coverage with tax differentiation - CGST has a differentiated tax slab, and it applies to various goods at differentiated rates. For example, the CGST tax rate on chocolates at 9%, while on mineral water it is 18%. This way, CGST covers almost every goods at their respective tax rates.

What is SGST?

Definition of SGST

SGST stands for State Goods and Service Tax, and is imposed by the State Government. SGST is levied on any transactions and businesses that occur within the state. For example, if a business sells a good to a party within the same state, the State government will receive an SGST on the good at the specified percentage. The major difference between CGST and SGST is that SGST is the State government imposed tax, while CGST is imposed by the Central government.

Tax coverage of SGST

STSG covers almost all the goods, except for a few items such as fresh milk, raw oats, unprocessed tea and coffee beans and a few more.

Calculation of SGST

Let us consider a clear example to get to understand how SGST is calculated. A wristwatch manufacturing company, for instance, sells a set of wristwatches to a watch dealer at a gross value of ₹30,000 within Maharashtra. Original sales price = ₹30,000 SGST charged = 9% of 30,000 = ₹2,700 CGST charged = 9% of 30,000 = ₹2,700 Total GST charged = SGST + CGST = 2,700 + 2,700 = ₹5,400 Total sales value after charging GST = 30,000 + Total GST = 30,000 + 5,400 = ₹35,400 Thus the state government will receive a tax of ₹2,700 on selling of the set of watches for ₹35,400.

Benefits of SGST

• Comprehensive taxation - SGST has provided the benefit of a comprehensive taxation scheme to the state government. Before SGST was introduced, the State government had to impose tax at multiple points, which are now collected under a common tax regime of SGST.
• Great source of revenue - SGST is one of the most significant ways to earn revenue for the state government. This also reduces the dependency of the State government on the Central government.
• Boosts transparency - It also develops better transparency throughout the collection of the tax by maintaining a uniform system of taxation throughout all the states.

Key Differences Between CGST and SGST

Here is a table to illustrate the major difference between CGST and SGST, based on the purpose as well as the applicability of the taxes. Having a look at the main differences, you will more clearly comprehend what is CGST and SGST, without being too theoretical.

You might also be interested in exploring Small Scale Manufacturing Business Ideas in India, which can benefit from CGST and SGST incentives.

CGST and SGST percentage on some common goods

Here is a short list that outlines the major goods and the rate of CGST and SGST levied on them.

Conclusion

By now, the answer to the question “What are CGST and SGST?” must have been apparent. Being part of GST, these taxes have made tax reformation in India a viable reality. CGST and SGST are both aimed at lowering tax evasion, increasing sources of revenue for the government and making tax collection a highly convenient option. Moreover, tax cascading was lowered by a great limit by introducing CGST and STSG, which made economic growth hastening.