CGST, SGST and IGST - the future language of taxation

By Vijay Kumar

While the Discussion paper on GST repeatedly emphasised that it is aimed at removing the cascading effect that still exists after the CENVAT/VAT regime, it conveniently did not highlight the expansion of the central tax to post manufacturing activities, the burden of which cannot be insignificant. At present, Central Excise duty is levied only on manufacture of goods, but not on subsequent trading. In the GST era, there will be CGST till the retailer and all the dealer value additions are brought in the tax net.

IGST – How will be Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method? An illustration:

The scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST.

Illustration:

Say CGST is @ 10% and SGST @ 10%

IGST is 10+10 = 20%

Let us say the value of goods exported from one state to the other is Rs 100/-

IGST to be collected by the Centre = Rs 20/-

Assuming Rs 5 each was paid from the credit of SGST, CGST and IGST and the remaining Rs 5 in cash, then:

The exporting state will transfer Rs 5 (SGST credit) to the Centre (as Centre has got only Rs 15 in the form of CGST (Rs 5), IGST (Rs 5) and Rs 5 in cash.

The buyer in the importing state can use the ICGST Credit for payment of SGST.

The Centre will pay this amount of Rs 20 ICGST to the importing State.