What is CGST? – Central Goods and Service Tax (CGST)

Introduction

The federal structure of India is divided into central and state authority. The constitution defines the rights and power of both state and central. Further, often difference arises between state and centre over their jurisdictions.

As said, there were various reasons in the past which had led to centre state face off. E.g. Over some transaction, VAT and service tax both are applicable, hence both the authorities try to increase their tax base, which often led to injustice in the form of double taxation.

To remove this ambiguity, the government has amended the constitution to resolve the issues to a certain extent.

What is CGST?

CGST or Central Goods and Service tax is the tax levied and collected by the central government on every supply of goods and services within the state. This tax is not applicable if supply is made outside the state.

Under GST, there are three components;

• CSGT or Central Goods and Service Tax
• SGST or State Goods and Service Tax
• IGST or Integrated Goods and Service Tax

CGST and SGST are applicable on the supply of goods and service within the state. Further, IGST is applicable on the supply of goods and services outside the state. The combined rate of CGST and SGST is equal to IGST rate.

Input Tax Credit of CGST

The input tax credit of CGST is available only against the payment of CGST or IGST. It is not allowed to adjust any amount against the payment of SGST.

CGST will subsume other taxes

In simple terms, CGST will be applicable in place of central taxes presently levied in the form of excise duty, service tax, Custom, etc.

Important Features of CGST

Here are some important features about the CGST;

1. It is levied by Central government to replace the existing tax like service tax, excise, etc.
2. It is applicable only within the state.
3. The credit of CGST is available only against CGST and IGST.
4. The exemption limit of Rs.20 Lakh is applicable.
5. The dealer can use the benefit of composition scheme up to turnover of 50 lakh.

Conclusion

We have tried to explain the CGST in a very basic language. If you still have any query, you can post it on our contact form.

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