Tax, GST and company law glossary

IGST, CGST and SGST

The three components of GST: integrated GST on inter-state supplies, and central and state GST on intra-state supplies.

In short

On a sale within a state at 18%, the tax splits into 9% CGST and 9% SGST. On a sale to another state, 18% IGST applies.

What it means

GST in India is collected in three parts. CGST (Central GST) goes to the Centre and SGST (State GST) goes to the state when goods or services are sold within the same state. IGST (Integrated GST) is charged by the Centre when a supply moves from one state to another, or on imports and exports. In union territories without a legislature, such as Chandigarh or Ladakh, UTGST takes the place of SGST.

How it works

The total rate stays the same; only the split changes. Whether a sale is intra-state or inter-state depends on the location of the supplier and the place of supply.

  • Intra-state supply at 18%: 9% CGST plus 9% SGST.

  • Inter-state supply at 18%: 18% IGST.

  • Imports attract IGST, and exports and supplies to SEZ units are treated as inter-state (zero-rated).

  • Using input tax credit: IGST credit is used first against IGST, and the balance against CGST and SGST. CGST credit can be used for CGST and IGST, and SGST credit for SGST and IGST. CGST credit can never pay SGST, and SGST credit can never pay CGST.

Example

A Mumbai trader sells goods worth ₹1,00,000 at 18% GST.

  • Sale to a buyer in Pune (Maharashtra): CGST ₹9,000 plus SGST ₹9,000, total ₹18,000.

  • Sale to a buyer in Ahmedabad (Gujarat): IGST ₹18,000.

Now set-off. Suppose in a month the trader owes IGST ₹5,000, CGST ₹15,000 and SGST ₹15,000, and has IGST credit of ₹25,000. Step 1: ₹5,000 of IGST credit pays the IGST. Step 2: the remaining ₹20,000 is used for CGST ₹15,000 and SGST ₹5,000. Step 3: SGST of ₹10,000 is still due and must be paid in cash.

Key points to remember

  • Charging CGST and SGST where IGST was due (or the reverse) is a common error. You must pay the correct tax again and then claim a refund of the wrong tax; there is no simple adjustment.

  • The buyer’s state shown on the invoice must match the place of supply, or the buyer may lose credit.

  • Keep separate ledgers for IGST, CGST and SGST in your books so returns tie up.

  • The GST portal applies the credit set-off order automatically in GSTR-3B, so check the utilisation table before paying.

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