CGST, SGST, and IGST Explained

Last updated: January 30, 2026

Introduction to GST Components

India's Goods and Services Tax (GST) follows a unique dual model where both the Central Government and State Governments simultaneously levy tax on the same transaction. This cooperative federalism approach necessitated the creation of three distinct components: Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), and Integrated Goods and Services Tax (IGST). Understanding these components is essential for businesses to ensure correct tax calculation, proper invoicing, and compliance with GST regulations.

The division between these taxes depends primarily on whether a transaction is intra-state (within the same state) or inter-state (between different states). This distinction affects not only how much tax is charged but also which government receives the revenue and how input tax credit can be claimed.

CGST: Central Goods and Services Tax

CGST is the component of GST levied by the Central Government on intra-state supplies of goods and services. "Intra-state" refers to transactions where the supplier and the recipient are located within the same state or union territory. The revenue collected through CGST goes entirely to the Central Government's coffers.

Key Characteristics of CGST

• Levied by: Central Government of India
• Applies to: Intra-state supplies (within the same state)
• Rate: Usually half of the total GST rate applicable to the goods/service
• Revenue: Goes entirely to the Central Government
• Input Tax Credit: Can be claimed against CGST or IGST liability
• Governed by: CGST Act, 2017

How CGST is Calculated

For intra-state transactions, the total GST is split equally between CGST and SGST. If a product attracts 18% GST, then CGST is 9% and SGST is 9%. This equal division ensures that both the Centre and the State share the tax revenue from transactions occurring within the state.

SGST: State Goods and Services Tax

SGST is the component of GST levied by the State Government on intra-state supplies of goods and services. Like CGST, SGST applies to transactions within the same state, but the revenue goes to the respective State Government where the transaction takes place.

Key Characteristics of SGST

• Levied by: State Government of the state where the transaction occurs
• Applies to: Intra-state supplies (within the same state)
• Rate: Equal to CGST (half of total GST rate)
• Revenue: Goes entirely to the State Government
• Input Tax Credit: Can be claimed against SGST or IGST liability
• Governed by: Respective State GST Acts

UTGST: Union Territory GST

For Union Territories without their own legislature (such as Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Daman and Diu, and Chandigarh), UTGST replaces SGST. Union Territories with legislatures (Delhi and Puducherry) levy SGST like regular states. The structure, rates, and rules for UTGST are identical to SGST.

How SGST is Calculated

SGST is always equal in amount to CGST for intra-state transactions. The combined CGST and SGST equals the total GST rate applicable to the goods or service.

IGST: Integrated Goods and Services Tax

IGST is the component of GST levied on inter-state supplies of goods and services, including imports into India. Unlike CGST and SGST which apply to intra-state transactions, IGST applies when the supplier and recipient are in different states or when goods/services are imported from outside India.

Key Characteristics of IGST

• Levied by: Central Government of India
• Applies to: Inter-state supplies (between different states) and imports
• Rate: Equal to the sum of CGST and SGST rates (full GST rate)
• Revenue: Collected by Centre but shared with destination state
• Input Tax Credit: Can be claimed against IGST, CGST, or SGST liability (in that order)
• Governed by: IGST Act, 2017

The Destination Principle in IGST

IGST follows the destination principle, which means the tax revenue ultimately goes to the state where the goods or services are consumed, not where they originate. This is achieved through a mechanism where the exporting state transfers the tax credit to the Centre, and the Centre transfers it to the importing state.

For example, if a manufacturer in Gujarat sells goods to a buyer in Maharashtra:

1. The Gujarat supplier charges IGST on the invoice
2. The buyer in Maharashtra pays IGST (which is a combination of CGST and SGST components)
3. The IGST collected is apportioned between the Centre and Maharashtra (the destination state)
4. Gujarat (the origin state) does not retain any share of the tax

How IGST is Calculated

IGST is calculated at the full GST rate applicable to the goods or service. Unlike intra-state transactions where the tax is split, inter-state transactions charge the entire tax as IGST.

Comparative Analysis: CGST vs SGST vs IGST

Determining Whether a Transaction is Intra-State or Inter-State

The classification of a transaction as intra-state or inter-state is crucial for determining whether to charge CGST+SGST or IGST. The determination is based on the location of the supplier and the place of supply.

For Goods

The place of supply for goods is generally determined as follows:

• Where movement is involved: The location where the movement of goods terminates for delivery to the recipient
• Where no movement is involved: The location of the goods at the time of delivery to the recipient
• On installation: The place where the goods are installed or assembled
• On board a conveyance: The location of the goods at the time the goods are placed on board

For Services

The place of supply for services depends on the nature of the service:

• General services: Location of the recipient (if registered) or location of the supplier (if recipient is unregistered)
• Services related to immovable property: Location of the immovable property
• Restaurant and catering: Location where the services are performed
• Transportation of goods: Location of the recipient (if registered) or place where goods are handed over (if unregistered)
• Telecommunication services: Address recorded in the supplier's records or billing address

Input Tax Credit (ITC) Rules for CGST, SGST, and IGST

Input Tax Credit is one of the most important features of GST, allowing businesses to claim credit for taxes paid on inputs. However, there are specific rules governing how ITC can be utilized:

ITC Utilization Rules

Practical Example of ITC Utilization

Special Scenarios and Considerations

1. Imports

Imports into India are treated as inter-state supplies and attract IGST. In addition to IGST, imports may also attract Basic Customs Duty (BCD) and Compensation Cess. The IGST paid on imports is available as input tax credit immediately upon payment.

2. Exports

Exports are treated as zero-rated supplies under GST. This means that GST is charged at 0% on exports, and exporters can claim refund of input tax credit or export without payment of tax under bond/Letter of Undertaking (LUT).

3. Supplies to SEZ

Supplies to Special Economic Zones (SEZ) units or developers are treated as inter-state supplies and attract IGST. These supplies are also zero-rated, meaning the supplier can claim refund of the IGST paid or supply without payment of tax under LUT.

4. E-commerce Transactions

For e-commerce transactions, the place of supply is determined based on the location of the recipient. If the seller and buyer are in different states, IGST applies. E-commerce operators are required to collect Tax Collected at Source (TCS) at 1% (0.5% CGST + 0.5% SGST for intra-state, 1% IGST for inter-state).

Common Mistakes to Avoid

• Incorrect Classification: Charging CGST+SGST for inter-state transactions or IGST for intra-state transactions
• Wrong Place of Supply: Incorrectly determining the place of supply, especially for services
• ITC Misutilization: Using CGST credit to pay SGST or vice versa
• Missing IGST on Imports: Failing to pay IGST on imports or not claiming eligible ITC
• Incorrect Invoicing: Not showing CGST and SGST separately for intra-state transactions
• Ignoring Reverse Charge: Not accounting for reverse charge mechanism on certain supplies

Impact on Business Operations

Understanding CGST, SGST, and IGST is crucial for several business operations:

Pricing Strategy

Businesses operating across multiple states need to consider the tax implications when setting prices. While the total GST rate remains the same, the breakup between CGST/SGST and IGST affects invoicing and input tax credit flows.

Inventory Management

Stock transfers between branches in different states are treated as supplies and attract IGST. This has implications for working capital as IGST needs to be paid on such transfers (though credit is available).

Location Decisions

The destination principle of IGST means that the consuming state gets the revenue. This has reduced the tax competition between states that existed under the previous VAT regime where manufacturing states had an advantage.

Compliance Requirements

Businesses need to track transactions carefully to ensure correct classification and tax application. GST returns require detailed reporting of inter-state and intra-state supplies separately.