Goods and Services Tax (File photo)
The Goods and Services Tax rolled out on Friday midnight at Central Hall of Parliament. GST is aimed at achieving one nation one tax agenda. GST has three components – State Goods and Services Tax, Central Goods and Services Tax and Integrated Goods and Services Tax. The components are designed to make a provision where Centre and the State are assigned responsibility to levy and collect taxes.
The three taxes in SGST, CGST and IGST will be imposed in order to achieve the objective of one nation on tax. IGST will not be imposed on imports. Here is the explanation of SGST, CGST and IGST to understand them in best way possible:
# State Goods and Services Tax (SGST)
States would impose and collect the State Goods and Services Tax (SGST) on the transactions happening within the state. The credit of SGST paid on inputs would be allowed for paying the SGST on output. The SGST will replace the these taxes which are currently in practice in state - State VAT, Central Sales Tax, Entertainment and Amusement Tax (except when levied by the local bodies), Taxes on lotteries, betting and gambling.
# Central Goods and Services Tax (CGST)
The taxes that Centre would levy and collect are called Central Goods and Services Tax (CGST). The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Cross utilization of credit of CGST between goods and services would be allowed. The CGST would be replacing these taxes which are currently in practice - Central Excise duty, Additional Duties of Customs (commonly known as CVD), Special Additional Duty of Customs (SAD), Service Tax.
# Integrated Goods and Services Tax (IGST)
Under inter-state transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution. In rough terms, IGST can be calculated by adding CGST to SGST. The IGST structure has been prepared to ensure seamless flow of input tax credit from one State to another.
The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST.
The importing dealer will claim a credit of IGST while discharging his output tax liability (both CGST and SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST.