CGST - Central Goods and Services Tax

Central Goods and Services Tax or CGST refers to the tax forms introduced by the central government in India to promote the concept of 'one nation, one tax'. The GST law was implemented on July 1, 2017. One of the categories of GST, i.e., The enactment of the CGST act, allows the Central Government to impose and gather taxes on the supplied goods or services within a state, along with related or incidental matters.

Validating the correct GSTIN through the GST search tool is crucial for determining tax applicability. GST is a tax based on the destination where the goods are consumed and not on the state where they are produced. Therefore, the state that receives the goods is the one that receives the GST tax. In this post, you will get a detailed overview of what is CGST. So, keep reading till the end.
 

What are Central Goods and Services Tax?

Central Goods and Services Tax is the tax imposed on the provision of goods and services in India, focusing on where they are consumed. This implies that the tax applies to the state where the goods or services are consumed. CGST full form is Central Goods and Services Tax and it applies to all supplies of goods and services in interstate trade, with some exceptions that are exempt from taxation.

The Central Government collects CGST and distributes it to state governments through the GST Compensation Fund. The states have the authority to impose their taxes on the provision of goods and services, known as State Goods and Services Tax (SGST). The rate of CGST is typically set at 18% but can be lowered through notifications by the central government. Each state decides its own SGST rates.

According to the Central Goods and Services Tax Act 2017, CGST applies throughout India, including Jammu and Kashmir.

Currently, six different slab rates are as follows:

Why are there three categories in GST?

Although the primary objective of GST is to have a unified tax system, India has three different categories of GST due to its federal structure. With multiple layers and levels of businesses, both central and state governments have the authority to levy and collect taxes. Previously, various indirect taxes were charged by the central and state governments, but now they are all included under GST.

The three GST categories cater to different scenarios. Within a state, businesses selling goods and services are subject to state GST and central GST, with both governments receiving a share. On the other hand, when goods are sold, or services are rendered between states, IGST is applicable. IGST is always a combination of CGST and SGST, and the seller deposits the tax at the IGST rate with the central government, after which it is shared with the states.

CGST example- Suppose the GST rate slab is 18%. In that case, the IGST rate charged on inter-state transactions would be the combination of the CGST and SGST rates, i.e., 18%, while the state GST and central GST would be charged separately on transactions within a state, i.e., 9% each.
 

History of CGST

●    As a component of India's Goods and Services Tax (GST) system, which went into effect on July 1, 2017, the Central Goods and Services Tax (CGST) was created. 
●    The country's indirect tax system, which was previously fragmented and complex with various rates and rules for multiple products and services, underwent a considerable change with the implementation of GST.
●    The Indian Parliament eventually approved the GST Bill in 2016. CGST, SGST, and IGST are the three levies that comprise the GST system. 
 

Objectives of the CGST Act, 2017

The implementation of the CGST Act in 2017 aimed to achieve several objectives. 

●    The previous taxation system in India resulted in the central and state governments levying different taxes on the same goods and services, leading to double taxation for manufacturers and others involved in the supply chain. This resulted in high levels of tax evasion and cascading effects.
●    The movement of goods and services across states was also impeded by taxes such as octroi, entry tax, and check posts, which added to the tax burden on businesses involved in interstate trade. Compliance requirements for taxpayers were also high, given the number of taxes they had to deal with.
●    To overcome these obstacles and promote free trade, GST was introduced on July 1, 2017. The central government levies taxes in the form of CGST, while the state governments levy SGST. This move eliminated double taxation, reduced the tax burden on taxpayers, and simplified compliance requirements. The GST system aimed to create a unified tax system that would facilitate ease of doing business and promote economic growth.
 

Features of the CGST Act, 2017

Goods and Services Tax includes the following features:

●    Imposing a tax on all supplies of goods or services or both within a state
●    Expanding the scope of input tax credit by allowing it for taxes paid on goods or services or both used or intended for business purposes
●    Requiring electronic commerce operators to collect tax at source on behalf of suppliers at a rate not exceeding 1% of the value of taxable supplies (net)
●    Allowing registered persons to self-assess the taxes they owe
●    Providing for the auditing of registered persons to ensure they comply with the Act's provisions.
 

What Is the Formula Of CGST?

The Central Goods and Services Tax amount or CGST meaning is determined using the following formula:
GST rate divided by the taxable quantity of goods or services equals CGST.
For instance, the CGST amount would be as follows if the GST rate is 18% and the taxable quantity of goods or services is Rs. 10,000:

CGST equals (18/2) x 10,000, or Rs. 900.

The CGST only makes up a portion of the overall GST sum; the other part is the State Goods and Services Tax (SGST) or Union Territory Goods and Services Tax, depending on whether the supply is made within a state or a Union Territory. CGST and SGST/UTGST are added to determine the total GST charge.
 

CGST Law Taxonomy

Central Goods and Services Tax is structured with 21 chapters and 174 sections, including three schedules that pertain to supplies without consideration, identification of activities as goods or services, and activities that aren't classified as either goods or services. These schedules are outlined as follows:

●    Schedule I: Specifies activities that must be treated as supply, even if made without consideration.
●    Schedule II: Defines activities that must be treated as either supply of goods or services.
●    Schedule III: Identifies activities or transactions that should be regarded as neither supply of goods nor supply of services.
 

CGST Rules

Here are the standard rules:

●    If you are registered for the Goods and Services Tax (GST), issuing a tax invoice for all taxable goods and services is mandatory. However, if registered under the GST composition scheme, a supply bill must be given.
●    Assigning a unique serial number to each invoice and arranging them sequentially is essential.
●    The tax invoice must contain your name, address, place of supply, and GSTIN.
●     CGST and SGST must be filed equally. If the GST rate is 18%, the CGST and SGST would be 9% each.
 

Documents Required for CGST Registration

●    Applications form
●    PAN card
●    Aadhaar card
●    Address proof
●    Cancelled cheque leaf
 

Benefits of Central Goods and Services Tax

●    GST simplifies the tax system by replacing service tax, central excise duty, and value-added tax (VAT). This results in reduced business compliance costs and easier adherence to tax laws.
●    It facilitates economic efficiency by establishing a unified national market for goods and services, which allows businesses to enjoy the benefits of economies of scale and increases competition. This leads to decreased costs for consumers.
●    GST enlarges the taxable transactions' base, which promotes government revenue and helps finance development expenditures. This lessens the indirect tax burden on taxpayers.
●    It contributes to controlling inflation by reducing production input costs, positively affecting overall economic growth.