Types of GST in India 2025

Imagine trying to solve a wild puzzle- that’s what tax regulations in India were like before 2017. It was like a patchwork quilt—each state stitched together with its own rules, ultimately creating a maze of confusion for businesses.

Before 2017, taking your business operations across states was like trying to navigate a maze, that too blindfolded! But then something changed in the landscape of the Indian taxation system thanks to the main character of today’s read: GST.

On July 1st, 2017, India implemented the Goods and Services Tax (GST)—a solid change that would revamp the financial rulebook. Businesses were suddenly able to breathe. No more complex tax calculations that made accountants pull their hair out. No more bureaucratic barriers strangling interstate commerce. Just businesses getting back to what they do best-growing!

GST is more than just a tax system. It embodies an idea of unity, simplification, and economic empowerment. It transforms India’s fragmented market into a seamless, connected network, enabling business visionaries to focus on what truly matters- growth, not deciphering tax codes.

This article goes into the types of GST in India, including CGST, SGST, UTGST, and IGST, implementation, and recent developments in India's taxation landscape!
 

GST Explained: What It Is And How It Works?

GST, or Goods and Services Tax, is basically a single tax that’s replaced a bunch of old indirect taxes in India. Taxes like excise duty, VAT, and service tax—they’ve all been merged under GST. So all these taxes were replaced, making it easier and more transparent.

Both Centre and State taxes are being merged into the GST. Let's investigate it further -

At the Central Level, GST has taken over several taxes, including:

• Central Excise Duty,
• Service Tax,
• Additional Customs Duty also called the Countervailing Duty,
• Additional Excise Duty, and
• Special Additional Duty of Customs.

At the State Level, many taxes have also been subsumed, such as:

• Subsuming of State Value Added Tax/Sales Tax, Central Sales Tax (collected by the States and levied by the Centre),
• Entertainment Tax (except the one levied by local bodies),
• Purchase Tax,
• Luxury tax,
• Octroi and Entry tax, and
• Taxes on betting, lottery, and gambling.

What Still Exists After GST?

Despite the shift to GST, some taxes continue to exist:

• Basic Customs Duty
• Property Tax
• Tax on Petrol and Diesel
• Electricity Duty
• Tax on Tobacco and Alcohol
• Vehicle Tax
• Stamp Duty on Property

The GST Act received the green light from Parliament on March 29, 2017, and it was operational all over the country by July 1, 2017. In other words, GST is applied to several goods and services we buy or use daily.

GST works as a complete, multi-stage, and destination-based tax system, applied at every step of value addition. It has combined most of the indirect taxes that previously existed, bringing a single tax structure throughout the nation. In short, it has made things simple by introducing one tax system for the entire nation, making India a single, integrated market.

GST is a unified tax that is collected at every stage of the supply chain, from the manufacturer all the way to the end consumer. Businesses are solely taxed on the value they have brought to the product or service at each stage.

Because of the set-off benefits from all previous stages, the ultimate customer only pays the GST assessed by the last dealer in the supply chain, preventing them from paying double tax.
 

What Are The Types Of GST In India?

Before the GST era, businesses in India had to juggle multiple taxes like Central Excise, Service Tax, and State VAT.

It was complicated, right?

But GST came to the rescue by streamlining everything into a single tax system with four key elements. Let’s break down the components of GST below:

1. CGST or the Central Goods and Services Tax
2. SGST or the State Goods and Services Tax
3. UTGST or the Union Territory Goods and Services Tax
4. IGST or the Integrated Goods and Services Tax

So, when goods or services are sold within the same state or union territory (intra-state transactions), both CGST and SGST/UTGST are collected. But, if the transaction happens between different states, only IGST is charged.

GST is a destination-based tax that collects tax revenue at the location where goods are consumed, not at the place of origin.

The Key Differences Between Intra-State And Inter-State Transactions

In the context of GST, knowing the distinction between intra-state and inter-state transactions helps one understand how the tax will be applied. Let us differentiate between these two concepts for easy understanding:

1. Intra-State Transactions

Intrastate supply of goods and services occurs when the location of the supplier and buyer of a product are within the same state. In that case, both the CGST and the SGST are collected by the seller from the buyer. Here's how it works:

1. 1. The CGST goes to the Central Government
   2. The SGST goes to the State Government
2. Inter-State Transactions

Inter-state transactions are a little more complex. Interstate supply of goods and services takes place where the supplier and the place of supply are located in different states. This also happens in the case of exports, imports, or supplies to or from an SEZ unit, all of which are considered interstate transactions.

So, what is an SEZ?

A Special Economic Zone (SEZ) refers to a designated area where duty and tax concessions are provided and businesses can operate, almost like a duty-free zone. For trade operations, in terms of duties and tariffs, an SEZ is considered like a foreign territory, meaning that businesses have more flexibility or fewer restrictions than in other parts of the country.

In interstate transactions, the seller charges the buyer Integrated Goods and Services Tax (IGST).

From state to state, these taxes have their own rules. Let’s decode how many types of GST are present and how they really work!
 

What Is IGST?

The IGST full form is Integrated Goods and Services Tax. All transactions involving the supply of goods and/or services over state lines are subject to this tax. Such transactions involve the exchange of goods or services between different states or Union Territories, as outlined in the IGST Act of 2017 and its later amendments.

IGST is involved in the importation of goods and services into India and the exportation of the same out of the country. However, in the case of exports, IGST is zero-rated; that is, no tax is levied on exports. The tax collected in interstate transactions is shared between the Central and State governments, keeping things balanced.
 

What Is CGST?

The CGST full form is Central Goods and Services Tax. It is a tax imposed by the Central Government on goods and services sold in the same state. All the revenue gathered from this tax goes straight to the Central Government. The whole process is governed by the CGST Act, 2017, along with all the updates or changes that have come since then.

In addition to the CGST, the same amount of SGST is collected on intrastate supplies, and the respective State Government collects the revenue.

How about we explain this further with an example?

So, if a seller in Maharashtra sells a product to a buyer within the state, both CGST and SGST will kick in, each getting a portion of the transaction.

This system guarantees that both the Central and State governments together impose their taxes, with a predetermined revenue-sharing ratio. Under Section 8 of the CGST Act, CGST is applied to all intrastate supplies of goods and services, with each component (CGST and SGST) capped at a rate of 14%.

Note: The tax liability for CGST would be set off only with the input tax credit of CGST or IGST and not with SGST. (The term "Input Tax Credit" (ITC) describes the tax paid on business purchases that can be deducted when paying output tax.)
 

What Is SGST?

State Goods and Services Tax, which is popularly known as SGST, is the tax that is levied by the State Government on goods and services sold within the same state, wherein the product or service is consumed locally.

SGST collection and its enforcement are managed by the SGST Act, 2017, and its subsequent amendments as provided for by each state. While the SGST came into existence, several other state-level taxes like VAT (Value-Added Tax), luxury tax, entertainment tax, entry tax, and others with their corresponding levies under SGST have been integrated and brought under a single platform.

As we have discussed above, the same intrastate supply is levied with CGST but under the control of the Central Government.

Remember: Any SGST liability can be set off only by SGST or IGST input tax credit and not with CGST. By the way, the tax paid on company purchases is known as the Input Tax Credit (ITC), and it can be deducted when paying output tax.
 

What Is UTGST?

UTGST, or Union Territory Goods and Services Tax, is another tax similar to SGST but applied particularly in the Union Territories. It's levied by the various Union Territory Governments on intrastate sales of goods and services taking place in their jurisdictions. It was established by the UTGST Act, 2017, and works along with CGST for all intrastate transactions within the Union Territories.

However, UTGST will apply to the Union Territories that do not have their individual functioning legislatures. These Union Territories include Ladakh, Andaman and Nicobar Islands, Chandigarh, Dadra & Nagar Haveli and Daman & Diu, and Lakshadweep.

Now, here is the twist: the other Union Territories like Delhi, Jammu & Kashmir, and Puducherry have their own legislatures, so they would follow the SGST instead.

Here’s a quick note: The rules for using ITC under UTGST work just like those for SGST. First, any UTGST input tax credit must be used to settle UTGST liabilities. The extra credit can then be utilised for IGST liability, in case there is any. Incidentally, this is the Input Tax Credit, or ITC, the tax you pay for business purchases and can claim as a deduction when paying your output tax.
 

Difference Between Types Of GST

Ever wondered how the different types of GST work? Let’s simplify it -

This breakdown shows how the types of GST are a collaborative effort between central, state, and union territory authorities, ensuring smooth tax collection across India’s diverse regions.

Is GST about to change your premiums? Let’s dive into what’s really happening!
 

Stay Updated:  Facts And Latest News On GST 2024-25

GST continues to make headlines as it undergoes significant changes within its landscape in the financial year 2024-25. Here are some of those significant updates, which are bound to make a difference for businesses, taxpayers, as well as the insurance industry:

1. Record-Breaking Collections
   This fiscal year has been a blockbuster for GST collections, reaching an astonishing Rs 20.18 lakh crores so far! With an average monthly haul of Rs 1.68 lakh crores, GST is proving to be a robust revenue generator.
    
2. Smarter Invoicing With IMS
   Starting from October 1, 2024, a new feature was made available on the Invoice Management System (IMS) in the GST portal, which is basically intended to assist taxpayers in handling invoice corrections and amendments with their suppliers.
    
3. e-Invoice Reporting Deadlines Extended
   According to the advisory on the GSTN portal, taxpayers with an annual turnover of Rs. 10 crore or more will need to report e-invoices on the IRP portals within 30 days. To give them enough time to adjust, this requirement will kick in from April 1, 2025.
    
4. Automated Solutions For Reviving Cancelled GSTINs
   On the GST portal, there’s an automated facility to reinstate cancelled GSTINs for taxpayers who have pending GST returns to file. It makes the process a lot smoother.
    
5. Introducing FORM GST DRC-03A
   The GST portal has brought out a new form called DRC-03A wherein taxpayers can set off any amount paid through FORM GST DRC-03 against any outstanding demand in electronic liability register. It is a pretty simple method of handling those payments.
    
6. Insurance Premiums Under The GST Scanner
   Probably, one of the biggest discussions of the year saw the proposal for reducing the GST rate on insurance premiums. The push to remove indirect tax on health insurance started gaining ground after Transport Minister Mr Nitin Gadkari wrote to the Finance Minister earlier this year, calling for it.
    
7. GST Council’s Big Decisions
   In the 54th GST Council meeting, they suggested forming a Group of Ministers (GoM) to take a deeper look at the GST issues related to life and health insurance. The GoM submitted its report in October 2024.
    
8. What’s Next For Insurance?
   Recently, our Finance Minister mentioned that GST on health and life insurance could drop if the GST Council decides to lower the tax. In addition, the Council is anticipated to contemplate lowering the tax rate on specific insurance plans, including eliminating the 18% tax on term life insurance.
   
   They might also remove the tax on health insurance for senior citizens and those with coverage up to Rs 5 lakh. However, major changes to GST seem unlikely, as some states are concerned about losing revenue.

With these updates, it’s clear that the different types of GST are evolving to meet diverse economic and social needs. Whether you’re a business owner, taxpayer, or insurance policyholder, staying in the loop has never been more crucial!
 

To Wrap It Up,

GST has truly revolutionised India's tax landscape, changing a once-intricate framework into a streamlined, proficient framework. By merging multiple taxes into various types of GST, it has improved business activities and intra-state, interstate and intra-union transactions. The magnificence lies in its effortlessness: one country, one tax. For entrepreneurs and consumers alike, GST implies less desk work and more straightforwardness, and hence a smoother financial excursion. As the system keeps on advancing, remaining informed stays pivotal for capitalising on this game-evolving change.
 

Disclaimer

The content on this page is generic and shared only for informative and explanatory purposes. It is sourced from multiple online resources and may be subject to change. Kindly seek advice from an expert before making any decisions related to the discussed subject matter.
 

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