Jul 308 min read

CGST vs SGST: Difference Between CGST & SGST

Updated: Oct 3

The Goods and Services Tax, sometimes known as the GST, is a tax that was recently added to the Indian tax system and is assessed on the delivery of goods and services. GST Registration is necessary for the proper operation of the firm. It takes about 3-6 working days to obtain GST Registration. Any company that operates without GST is breaking the law and faces consequences. The central government would collect the CGST or SGST based on the transaction under the GST statute. Both CGST and SGST are collected when a supply of goods or services occurs within the state; this type of transaction is referred to as an intrastate transaction. In this article, we will explain the difference between these concepts in detail.

Table of Content

What is the Central Goods and Services Tax (CGST)?

Calculation of CGST

What is the State Goods and Services Tax (SGST)?

Calculation of SGST

What is the Difference Between CGST and SGST?

Conclusion

Most Asked Questions

What is the Central Goods and Services Tax (CGST)?

The Indian government imposes the Central Goods and Services Tax on all transactions involving products and services within the state. It is a tax imposed on all transactions that take place within the state. The CGST has taken the place of all previous central taxes, including the central excise charge, service tax, and customs duty. Both taxes are imposed based on the commodities, and the rates for the CGST and SGST are the same.

The central and state governments have come to a mutual agreement on sharing the revenue generated from the Goods and Services Tax (GST). This revenue-sharing is based on an equal division between the Central Goods and Services Tax (CGST) and the State Goods and Services Tax (SGST). According to Section 8 of the CGST Act of 2017, the intra-state supply of goods and services can be taxed at a maximum rate of 14% for both CGST and SGST.

Illustration: A has to pay two taxes if he wants to sell a product to B, who lives in the same state. The SGST rate will be 9% in addition to the 9% CGST rate. GST is not collected on products consumed in the state in which they are produced. The manufacturing tax levied by the state is then transferred to the consuming state by the union government.

Calculation of CGST

You are a business owner and you charge ₹12,000 for a product. Given that the product's GST rate is 18%, the total GST comes to ₹2,160 (18% of ₹12,000). Half of the total GST for sales within the state is made up of the CGST and SGST (State GST). Hence, half of ₹2,160, or ₹1,080 (9% of ₹12,000), is the CGST.

How does CGST works?

When a supplier provides goods or services within a state, they need to charge both CGST and SGST on the invoice. The supplier is responsible for depositing the CGST amount with the central government. This CGST revenue is then shared with the state government where the goods or services are supplied. The CGST is calculated based on the total value of the goods or services, including any taxes or duties that have already been paid.

What is the State Goods and Services Tax (SGST)?

The state goods and services tax, or SGST for short, is one of two taxes imposed on intrastate sales of goods and services. The state in which the items are bought and sold is subject to SGST. The current state taxes, such as the VAT, sales tax, entertainment tax, luxury tax, entry tax, state cess, and surcharge on any form of transaction involving goods and services, would be replaced by this new one. The only entity that designs the revenue obtained under the SGST is the state government.

Illustration: Goods sold by Arun from Uttar Pradesh to Lakshay from Uttar Pradesh will be subject to 18% GST, which also includes 9% CGST and 9% SGST

Calculation of SGST

Assume you run a bakery in Delhi and you charge a customer in the same state ₹10,000 for a cake. Cake is subject to a 5% GST rate, which comprises both SGST and Central GST (CGST). The SGST rate in this scenario would be 2.5%, or half of the 5% overall GST rate. Thus, in this transaction, you would charge the client ₹250 for SGST, which would be collected by the state government.

What is the Difference Between CGST and SGST?

In India, taxes on goods and services produced domestically are levied by both the central and state governments. The most significant distinction between CGST and SGST is shown in the following table:

Factor to be considered	CGST	SGST
Full Form	Central Goods and Service Tax	State Goods and Service Tax
Meaning	The Central Goods and Services Tax (CGST) has replaced the existing service tax, central excise duty, and various other taxes.	The State Goods and Services Tax (SGST) has taken the place of sales tax, luxury tax, and several other state-level taxes.
Imposing Authority	Central Government	State Government
Collecting Authority	Central Government	State Government
Extent	CGST replaces the Central Sales Tax (CST), Service Tax, Additional Excise Duties, CVD (Additional Customs Duty – Countervailing Duty), SAD (Special Additional Duty of Customs), and other indirect taxes have been combined with the CGST.	SGST replaces taxes such as sales tax, entry tax, luxury tax, etc.
Collection Method	Collected by the supplier from the buyer and deposited to the Central Government.	Collected by the supplier from the buyer and deposited to the State Government.
Revenue Sharing	The State Governments and the Central Government may split the CGST money received. In accordance with the recommendations of the GST Council, it divides the revenue among the states.	The State Governments cannot share the SGST revenue with the Central Government.
Registration	You are required to register for CGST if your annual turnover exceeds ₹20 lakhs. For businesses in Northeastern states, this threshold is ₹10 lakhs.	If your annual turnover is over ₹20 lakhs, you need to register for SGST. In the case of Northeastern Indian states, this threshold is set at ₹10 lakhs.

How does SGST work?

When a supplier provides goods or services within a state, they must charge both SGST and CGST on the invoice. The supplier is responsible for depositing the SGST amount with the state government. This SGST revenue is retained by the state where the goods or services were supplied. The SGST is calculated based on the total value of the goods or services, including any applicable taxes or duties.

Conclusion

The Central Government levies GST under the CGST tax type and the State Governments levies the SGST tax type. Their applicability is determined by the value of goods and services that are transported within a state. The Central Government receives the CGST, while the State Government receives the SGST. When filing GST returns, businesses must adhere to the rules and comprehend the distinction between CGST and SGST.

FAQ

Q1. What kind of tax is GST?

The majority of products and services supplied for domestic use are subject to an indirect tax known as the products and Services Tax (GST).

Q2. What are the benefits of getting GST registration?

Obtaining GST registration has several advantages, including unrestricted interstate sales and the ability to claim the input tax credit. For small firms, a composition plan is an additional option that offers reduced tax liability, increased working capital, and fewer compliances. The GST tax system has significantly lessened cascading.

Q3. How many different kinds of SGST are there?

There is only one type of SGST in India. Rather than the state where the items are made, the state where the goods or services are used collects this indirect tax.

Q4. Can CGST and SGST be charged at the same time?

Both the CGST and SGST apply on supplies of goods or services taking place within a state, also known as intra-state transactions. On the other hand, only IGST will be collected in the event that supplies of goods or services—also known as inter-state transactions—occur between the states.

Q5. What are the CGST and SGST percentages?

Owners of businesses are required to pay equal portions of CGST and SGST. For example, 9% CGST and 9% SGST make up the 18% GST that is applicable.

Q6. Who will pay CGST and SGST?

The seller collects both CGST and SGST from the buyers in intrastate transactions. After that, they deposit SGST with the State Government and CGST with the Central Government.

Q7. Can we transfer SGST to CGST?

You can move data across ledgers for Tax, Interest, Penalty, Fee, and Others, as well as between heads like CGST, SGST, and IGST. As a result, you can now transfer funds between all Major and Minor heads.

Q8. Is it mandatory to pay CGST and SGST?

Businesses that would rather pay the standard GST rate might choose to forego the optional Composition Scheme. Businesses must pay CGST and SGST at a lower rate of 1% each under the Composition Scheme.

Q9. Is CGST and SGST refundable?

Yes, after receiving the application and confirming that it is complete in all aspects, the reimbursement must be granted within 60 days. If the reimbursement is denied within the sixty days allowed by Section 56 of the CGST/TSGST Act, interest must be paid at a rate not to exceed 6%.

Q10. How does the distribution of tax revenue differ between CGST and SGST?

CGST revenue is collected by the central government, while SGST revenue is collected by the respective state government. This dual system ensures both central and state governments have their share of tax income.

Q11. Are there any differences in the tax rates of CGST and SGST?

No, CGST and SGST are typically levied at the same rates, which are half of the applicable GST rate for the intra-state supply of goods and services. This ensures uniformity in taxation within a state.

Q12. How do CGST and SGST apply to transactions within a union territory?

In union territories without a legislature, Union Territory GST (UTGST) replaces SGST. Thus, for intra-union territory supplies, CGST and UTGST are applicable instead of CGST and SGST.

Q13. Can a taxpayer utilize the input tax credit of CGST to pay SGST and vice versa?

No, the input tax credit (ITC) of CGST can only be used to pay CGST or IGST, and similarly, the ITC of SGST can only be used to pay SGST or IGST. Cross-utilization between CGST and SGST is not allowed.

Q14. What are the compliance differences for filing CGST and SGST returns?

The compliance process for filing returns is generally the same for both CGST and SGST. However, businesses need to ensure that they correctly segregate and report their CGST and SGST liabilities in their GST returns.

Q15. How does the treatment of supply within a state differ under CGST and SGST compared to IGST for inter-state supply?

For intra-state supplies, CGST and SGST are levied, each at half the applicable GST rate. For inter-state supplies, IGST is levied, which is the sum of CGST and SGST rates combined, simplifying the tax structure for cross-border transactions.

Q16. What happens if a business erroneously pays CGST instead of SGST or vice versa?

If a business erroneously pays CGST instead of SGST or vice versa, it must adjust the mistake by correctly filing the details in the subsequent returns. The tax authorities may also provide a mechanism to rectify such errors.

Q17. How do CGST and SGST affect the pricing strategy of businesses operating in multiple states?

Businesses operating in multiple states need to account for both CGST and SGST in their pricing strategy for intra-state supplies, ensuring compliance with local tax regulations and maintaining consistent pricing across different states.

Q18. In what scenarios do both CGST and SGST not apply to a transaction?

Both CGST and SGST do not apply to inter-state transactions, imports, and exports. In these cases, IGST is levied instead. Additionally, certain exempt goods and services are not subject to CGST and SGST.

Q19. How does the treatment of deemed exports differ under CGST and SGST?

Deemed exports refer to supplies of goods manufactured in India and supplied to certain entities or for certain purposes, considered as exports under GST law. CGST and SGST may be applicable on deemed exports, but suppliers can claim a refund of the taxes paid or opt for supplies without payment of tax under bond or LUT (Letter of Undertaking).