Goods and Service Tax (GST) came into force in India on 1st July 2017. The primary purpose of GST was to develop a unified taxation system throughout the country. With the introduction of GST, most goods and services became chargeable under a single tax. This also curbed the cascading effect of indirect taxes, i.e., tax on tax.
The Goods and Service Tax subsumed many indirect taxes such as Value Added Tax, Service Tax, Central Excise Duty, Luxury Tax, State Surcharges and Cesses (that relate to supply of goods and services) etc.
SGST Full Form & Meaning
SGST’s full form is State Goods and Service Tax. It was introduced under The State Goods and Service Tax Act, 2017 (SGST Act). It provides for the charging and collection of taxes by the states. SGST replaces almost all the previous indirect taxes that were collected by the states.
Applicability of SGST
SGST is applicable on an intrastate supply of goods or services or both, except for the supply of alcoholic liquor for human consumption.
This means SGST will be charged only when goods or services or both are supplied within the same state.
Note – Despite being union territories, Delhi and Puducherry shall have the SGST provisions on them and do not fall under the parlance of the UTGST Act.
Intrastate Supply of Goods and Services
Under GST, when the supply of goods and services are made within the state or the Union Territory, it shall be treated as intra-state supply. However, the supply of goods or services to a Special Economic Zone (SEZ) developer or a Special Economic Zone Unit shall be treated as an inter-state supply even when their physical locations are within the same state.
Example of SGST
Suppose a trader in Mumbai supplies a TV set worth INR 20,000 to a trader in Pune. The GST rate applicable to this TV set is 28%. The value of the tax will be INR 5600.
In this case, CGST will be 14% and SGST will be 14%. The trader will charge INR 2800 as CGST and INR 2800 as SGST from the trader in Pune.
Now, if the trader from Mumbai is supplying the same TV set to an SEZ unit located within Mumbai, it will be considered an inter-state transaction and hence, the trader will charge 28% IGST.
Also, if the trader from Mumbai is supplying the same TV set to Delhi, 28% IGST will be charged because it is an inter-state transaction.
Collection of SGST
The State Governments collect SGST. In the above example, the Maharashtra State Government will collect the SGST charged.
Claiming of Input Tax Credit (ITC)
The credit of SGST can be claimed or set off only against SGST or IGST, and in its respective order.
For instance, if a trader in Mumbai has an unclaimed credit of INR 5000, then it will first get set off against SGST, and thereafter there is any unclaimed credit, it will be set off against IGST.
Tax Rates Under SGST
Under SGST, there are different rates charged on goods and services, depending upon their type. Generally, necessities have a lower tax rate as compared to expensive luxury items. The rates of tax under SGST are as follows.
|GST Rates||Various Goods and Services|
|5%||Applicable to commonly used or necessary products such as edible oil, paneer, yoghurt, sugar, spices, tea etc.|
|12%||Applicable to processed foods such as jams, citrus fruits, drinking water etc.|
|18%||Applicable to products such as hair oils, toothpaste, soaps, chocolates, fountain pens, industrial intermediate products and capital goods|
|28%||Applicable mainly to luxury items, premium cars, air conditioners, aerated drinks, motorcycles and pan masala|
Difference Between SGST and IGST
SGST is chargeable on the supply of goods or services or both within a state, which is called intrastate transactions. In contrast, IGST is charged on the supply of goods or services or both from a state or union territory to any place outside it, i.e., inter-state supplies.
SGST is collected by the respective state government, whereas IGST is collected by the Central Government and then distributed proportionately to the states.
For intra-state supplies, registration is not mandatory up to prescribed limits, while registration is mandatory for all inter-state supplies.
The credit of SGST can be claimed only against SGST and IGST in respective order. Likewise, the credit of IGST can be claimed only against IGST and CGST.
Also, the composition scheme is applicable only for intrastate supplies and not for inter-state supplies.