What is CGST? Central Goods and Service Tax

The Goods and Services Tax (GST) is an indirect taxation system that was implemented on July 1, 2017. The primary objective of the introduction of GST was to streamline the erstwhile fragmented indirect taxation system in India. With the introduction of the regime, several indirect taxes, such as excise duty, sales tax, service tax and VAT, were subsumed.

GST has three major components: the State Goods and Services Tax (SGST), the Central Goods and Services Tax (CGST) and the Integrated Goods and Services Tax (IGST). In this article, we’re going to focus on CGST, its objectives and various features, including the documents required for registration under the tax regime.

What is CGST?

CGST stands for Central Goods and Services Tax and is levied by the Union Government of India. It is a component of the larger Goods and Services Tax and has replaced several central indirect taxes, such as central excise duty, central sales tax and service tax, among others.

CGST is applicable on all intrastate sales, along with SGST (State Goods and Services Tax). The supply of goods and services where both the supplier and the buyer are located in the same state is classified as intrastate sales.

CGST: An Example

Now that you know the meaning of CGST, let’s look at a hypothetical example to understand how it is levied.

Assume you’re a supplier of electronic goods and your business is located in the state of Maharashtra. You sell a television worth ₹50,000 to an individual who also resides in the state of Maharashtra. The sale transaction would be classified as an intrastate sale, meaning that CGST, along with SGST, would have to be levied on the transaction.

Now, the GST rate on televisions is 28%, of which 14% would be the CGST rate and 14% would be the SGST rate. The buyer of the television would have to pay ₹7,000 (₹50,000 * 14%) as CGST and another ₹7,000 as SGST, bringing the total cost of his purchase to ₹64,000 (₹50,000 + ₹14,000).

History of CGST

CGST was introduced in India with the passing of the Central Goods and Services Tax Act of 2017. The act governs the various provisions related to CGST, ranging from tax rates and the levy and collection of tax to the documents required for registration under the act. The tax collected under CGST on intrastate sales must be deposited with the Union Government of India by the supplier of the goods and services.

Objectives of the CGST Act, 2017

The primary objective of the Central Goods and Services Tax Act of 2017 was to subsume the erstwhile fragmented central indirect taxation into CGST. The idea behind subsuming all of the individual central indirect taxes under a single tax regime was to prevent double taxation and reduce the tax burden and compliance measures for businesses.

Thanks to the enactment of the CGST Act of 2017, most of the major issues plaguing businesses in the Indian economy were solved, improving the country’s ‘ease of doing business’ ranking.

Features of the CGST Act, 2017

With the history and objectives of this indirect taxation system out of the way, let’s focus on the key features of the CGST Act of 2017.

The Central Goods and Services Tax is only levied on the intrastate supply of goods and services.
The maximum rate of CGST that can be levied is 14% on the total value of goods and services supplied.
Any supplier found to have violated any of the provisions under the CGST Act of 2017 would be subject to penalties and fines. In the case of repeat offenders, the consequences are more severe and may even lead to imprisonment.
The CGST Act of 2017 also contains provisions to recover tax from defaulters through tax arrears.

CGST Rules

Now that you’ve seen the salient features of the CGST Act of 2017, let’s look at some of the key rules that suppliers registered under the act must follow.

Businesses and individuals with annual turnovers of less than ₹40 lakhs (in the case of supply of goods) and turnovers of less than ₹20 lakhs (in the case of supply of services) are exempt from registering themselves under GST and collecting CGST.
Businesses and individuals registered under GST must provide the purchaser with a valid GST invoice in the prescribed format for every sale transaction.
Small businesses and individuals with annual turnovers not exceeding ₹75 lakhs can opt to register themselves under the GST composition scheme and enjoy lower tax rates and reduced compliance measures. However, such suppliers cannot issue a GST invoice but may issue a bill of supply instead.
Each GST invoice or bill of supply must have a unique serial number and be issued in a sequential order.
The CGST on intrastate sale transactions will always be half of the prescribed GST rate for the goods or services in question. For instance, if the GST on electronic goods is 28%, the CGST rate would be 14% (28% ÷ 2). The other half (14%) is the State Goods and Services Tax (SGST).

Documents Required for CGST Registration

Since both CGST and SGST are levied on intrastate transactions, it is not possible to register yourself under the Central Goods and Services Act of 2017 alone. Instead, you need to register under the Goods and Services Tax as a normal taxpayer. Here’s a quick overview of some of the documents you need to submit as part of the registration process.

PAN card of the proprietor or business
Proof of address (in the case of a proprietor or individual): Aadhaar, passport or voter’s ID
Proof of principal place of business: latest utility bills, property tax receipt, municipal khata, rent or lease agreement, legal ownership document or rent receipt with an NOC from the owner of the premises
Proof of business: certificate of incorporation, registration certificate, partnership deed or any other documentary evidence
A recent passport-size photograph of the proprietor, promoter, director or partner of the business
A recent passport-size photograph of the authorised signatory for the business
Proof of appointment of the authorised signatory: an authorisation letter from the proprietor or partner or a copy of the resolution passed by the Board of Directors of the company
Latest bank statements or a cancelled cheque leaf belonging to a bank account in the name of the proprietor or business

Why are there Three Categories in GST?

As you’ve already seen, GST in India has three components or categories: State Goods and Services Tax (SGST), Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST).

The rationale behind the categorisation of GST into three components is to ensure that the various states of the country aren’t deprived of the tax revenue they’re entitled to. By splitting GST on intrastate transactions into SGST and CGST, both the Union Government of India and the respective states can get their fair share of revenue.

In addition to equitable revenue sharing, another major reason for categorising GST is to properly account for interstate sale transactions where the supply of goods and services is made from one state to another. The introduction of IGST, or Integrated Goods and Services Tax, has made it possible. In the case of interstate transactions, IGST is collected and deposited with the Government of India, which then distributes it to the concerned states.

The categorisation of Goods and Services Tax ensures uniformity and clarity in taxation across the country through a clear delineation of tax jurisdictions and responsibilities.

Conclusion

With this, you must now be aware of not only the full form of CGST but also its various rules, features and objectives. The Central Goods and Services Tax is a pivotal part of the country’s indirect taxation system. By subsuming multiple central indirect taxes into a single umbrella, CGST has not only streamlined the fragmented system but has also made tax compliance a lot easier.