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What is SGST: A Guide on State Goods and Service Tax

What is SGST: A Guide on State Goods and Service Tax

In India, one of the tax elements of the GST is the SGST. State Goods and Service Tax is now covered by the SGST Act. It falls under one of the three categories of the Goods and Services Tax (CGST, IGST, and SGST), which is based on the idea of one tax, one country. Under the 2017 State Goods and Service Tax Act, SGST is applicable. 

Except for a few specific items and services, such as alcoholic beverages intended for human consumption, a broad range of goods and services are subject to SGST. The real price paid or payable for the products or services involved is represented by the transaction value, which is the basis for determining the tax. The "one tax, one nation" concept, which attempts to simplify the intricate multi-tiered tax system, is based on the SGST as a cornerstone of the effort to streamline and unify taxation throughout India. In this article, we will explain the concept of SGST in detail.

 

Table of Contents

 

What is SGST?

State Goods and Services Tax, or SGST, is the tax that is imposed under the GST structure on transactions involving goods and services that take place inside a state's borders. This tax is an intrastate tax because it is levied by the state government where the products or services are used. The state's own SGST Act of 2017 governs the administration and collection of SGST. It may undergo sporadic updates. Value-added tax (VAT), entertainment tax, luxury tax, and other state-level levies were combined with the establishment of the SGST, streamlining the tax system and increasing efficiency.

It is levied by the government of the relevant state or Union Territory and is determined by a tax rate that is applied consistently and differently based on the kind of goods or services involved. You can use the SGST input tax credit to offset your SGST liability and, in certain situations, your CGST liability. It's crucial to remember that CGST and SGST credits cannot be used in conjunction with one another, so there must be a distinct separation between their use.


Illustration:

A, a client based in Chennai, Tamil Nadu, and B, a registered dealer based in Ludhiana, Punjab, are conducting business. The nature of the transaction is the selling of items for a total of Rs. 18,000 in value. The Goods and Services Tax (GST), which is applied consistently throughout the nation, is applicable to this transaction. For this specific transaction, the appropriate GST rate is 14%. There are two parts to this 14% rate:

  • The Central Goods and Services Tax (CGST) makes up 7% of the GST rate overall. The central government gathers it. 

  • The remaining 7% is said to be SGST, and the Punjab state government is in charge of collecting it. 

The idea behind this allocation is that the SGST component varies depending on the state where the products are supplied. In this instance, the SGST component is charged in line with Punjab's GST laws because the items are being provided from Ludhiana within the state's borders. In his capacity as the supplier, B is in charge of obtaining the GST from the client, A. 

Value of goods= Rs. 18,000

CGST= 7% of Rs. 18,000= Rs. 1260

SGST= 7% of Rs. 18,000= Rs. 1260


GST= Rs. 1260 + Rs. 1260= Rs. 2520

The Central Government receives Rs. 1,260 of the entire amount of GST collected, with the remaining Rs. 1,260 going particularly to the State Government of Punjab. This division makes sure that the central and state governments receive the proper share of the tax revenue in accordance with the GST.


Features of SGST

The key features of state GST are listed below:

  • Intrastate Tax: When a provider and the location of the supply are both in the same state or union territory, the SGST is applicable to intrastate supplies. It guarantees that the state in which the consumption occurs collects taxes. 

  • Combination of State Taxes: The SGST combines different state-level taxes into a single tax structure as part of the larger GST rollout. The tax system is made simpler by this unification, which also makes compliance easier and fosters an atmosphere that is more conducive to business.

  • State-Specific Legislation: The SGST Act, which controls the levy and collection of SGST, is unique to each state in India. An example of one such act is the Telangana GST Act. States may modify their SGST legislation to better meet their unique needs.

  • Basis for Transaction Value: The actual amount paid or due for the products or services provided serves as the basis for SGST tax calculations. This method offers a simple way to figure out your tax due.

  • Digital Compliance: Businesses must submit returns and keep records electronically as part of the SGST system, which places a strong emphasis on digital compliance. This digital strategy streamlines the tax administration process, decreases paperwork, and improves transparency. 


Benefits of SGST

The "one nation, one tax" concept, which aspires to standardise taxation throughout the country, is aided by the SGST. This implies that the tax system is uniform regardless of the state in which a transaction takes place, which lessens the compliance difficulties faced by companies with multistate operations. The implementation of SGST as a part of the GST system offers myriad benefits. Here are a few of them:

  • By doing away with the cascading impact of taxes, the SGST streamlines the tax system. Tax on tax used to occur when the same items or services were subject to several taxes at various points in the supply chain. By guaranteeing that taxes are only paid on value addition, SGST simplifies and improves the business-friendly tax system. 

  • The Goods and Services Tax (GST) guarantees an equitable allocation of tax income between the Federal and State governments. The state where the goods or services are consumed keeps the tax revenue obtained under the SGST. This revenue-sharing plan helps local development projects and supports state budgets.

  • Value-added tax, entertainment tax, luxury tax, entry tax, and other state-level taxes were combined under the SGST upon its establishment. The tax structure is made simpler by this consolidation, which relieves enterprises of the burden of managing numerous state taxes.


Applicability of SGST

The supply nature of a particular transaction determines the applicable GST rates for SGST/UTGST as well as other tax components like IGST and CGST. When it comes to transactions, there are two different kinds of supplies: intra-state and inter-state.

  • Intra-State Supply: When both the supplier's and the buyer's locations are in the same state, this is referred to as an intra-state supply of products or services. A seller is required to collect both the CGST and the SGST from the buyer in a transaction involving supply inside the state. Both the State and Central governments receive deposits of the Goods and Services Tax (GST).

  • Inter-State Supply: When a supplier and a recipient are located in separate states, this is referred to as an interstate supply of goods or services. Additionally, a transaction is deemed to be interstate when it involves the export or import of products or services, or when a SEZ unit supplies the goods or services. A seller must get IGST from the buyer in any transaction involving supplies that takes place outside of the state or between two states.


SGST, CGST, and IGST Rates for Some Common Products



SGST, CGST, and IGST Rates for Some Common Products

Conclusion  


Since the meaning of CGST and SGST is evident now, let us examine the rationale behind their separation. The structure of India, wherein both the central and state governments have the authority to impose taxes, is reflected in this breakdown of GST. State governments charge sales inside their states sales tax (SGST), whereas the federal government charges sales tax (CGST). This division makes sure that state governments share money and makes it easier for input tax credits to be transferred throughout the country. Additionally, it simplifies tax compliance and administration for taxpayers who deal with the state. The goal of the GST system is to create a tax structure that minimises the consequences of tax cascades while improving corporate operations.


FAQ

Q1. What are the types of GST in India?

In contrast to the pre-GST era, which included several taxes such as Central Excise, Service Tax, State VAT, and so on, the GST law created a single tax with three parts: CGST, SGST, and IGST. Both the CGST and SGST are levied on supplies of goods or services that take place within a state or intra-state transactions. On the other hand, only IGST will be collected if supplies of goods or services—also known as inter-state transactions—occur between the states.


Q2. Why GST is split into different components?

India is a federal nation, with the authority to levy and collect taxes granted by our Constitution to both the central government and the states. Both governments must raise tax income in the form of GST to fulfil their separate obligations. States and the federal government both impose GST at the same time. To guarantee "One Nation, One Tax," the three-type tax structure is put in place to assist taxpayers in competing with one another.


Q3. Which tax is applicable on interstate sales?

Integrated Goods and Services Tax is the full name of this tax. All interstate supplies of goods and/or services, or those between two or more states or Union Territories, are subject to the Goods and Services Tax (GST).


Q4. Which tax is applicable on intrastate sales?

For intrastate supplies, there is an application for both the Central Goods and Service Tax (CGST) and the State Goods and Service Tax (SGST). For both goods and services, the GST rates would stay the same; however, the tax amount and the GST rate would be split evenly between the SGST and CGST headings.


Q5. When is UTGST applicable?

Like SGST, UTGST is imposed in Union Territories that lack their own legislature. The Union Territories of Ladakh, the Andaman and Nicobar Islands, Chandigarh, Dadra & Nagar Haveli, Daman & Diu, and Lakshadweep are all subject to UTGST on supplies.


Q6. Can CGST and SGST be charged together?

Yes, for intrastate supplies made inside the same state, both CGST and SGST are charged at the same time.


Q7. How is SGST credit utilized to pay IGST in a different state?

SGST credit can only be used to pay IGST obligations under the same Goods and Services Tax Identification Number (GSTIN).


Q8. Can SGST credit be used to set off CGST?

No, SGST credit cannot be used to offset CGST liability; instead, it can be used to offset SGST liability first and then use the remaining ITC for IGST.


Q9. How often are SGST rates revised?

Since the Goods and Services Tax (GST) was put into effect, the rates have been altered several times. At the 39th GST Council Meeting, which was place on March 14, 2020, the most recent rate revision went into effect. Numerous meetings of the GST Council have been held in relation to specific rate changes that were eventually enacted. You can monitor the specifics of all GST types and rate adjustments by going to the official website.


Q10. What determines the applicability of CGST, SGST, or IGST?

Find out if the transaction is an intrastate or interstate supply to ascertain which tax applies in a taxable transaction: the Central Goods and Services Tax (CGST), the State Goods and Services Tax (SGST), or the Integrated Goods and Services Tax (IGST).



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