India follows a dual GST model. The Constitution empowers both the Centre and the States to levy GST on a common base. Understanding the four components is critical for correct invoicing, tax payment, credit utilisation and return filing.
The Four Components
- CGST – Central Goods and Services Tax: Levied by the Central Government on intra-state supplies of goods or services.
- SGST – State Goods and Services Tax: Levied by the State Government on intra-state supplies.
- UTGST – Union Territory Goods and Services Tax: Levied by Union Territories without legislatures on intra-state supplies.
- IGST – Integrated Goods and Services Tax: Levied by the Central Government on inter-state supplies, imports into India and supplies to or by SEZ units/developers.
Intra-State vs Inter-State Supply
The nature of supply determines which taxes apply.
- Intra-state supply: Where the location of the supplier and the place of supply are in the same State or Union Territory, CGST plus SGST or CGST plus UTGST is charged. Example: A Mumbai supplier sells goods to a Pune customer. CGST and Maharashtra SGST apply.
- Inter-state supply: Where the location of the supplier and place of supply are in different States or Union Territories, IGST is charged. Example: A Mumbai supplier sells goods to a Delhi customer. IGST applies.
- Imports: Imports are treated as inter-state supplies under Section 7(2) of the IGST Act. IGST plus basic customs duty applies.
- Exports and supplies to SEZ: Treated as zero-rated supplies under Section 16 of the IGST Act.
Place of Supply Determines Tax Type
The place of supply rules in Chapter V of the IGST Act determine whether a supply is intra-state or inter-state. For services, the default place of supply is the location of the recipient if the recipient is registered. If the recipient is unregistered, the default place of supply is the location of the supplier. Specific rules apply to immovable property, events, transport, telecommunication and other services.
Input Tax Credit Set-off Order
After the 2018 amendments, Section 49A, Section 49B and Rule 88A of the CGST Rules prescribe a specific order for utilisation of ITC:
- IGST credit must first be set off against IGST liability.
- The balance IGST credit can then be set off against CGST and SGST/UTGST in any order.
- CGST credit cannot be used to pay SGST/UTGST.
- SGST/UTGST credit cannot be used to pay CGST.
- CGST and SGST/UTGST credits are first utilised for their respective tax heads before any cross-utilisation, except that IGST credit is fully exhausted first.
This order is mandatory for electronic credit ledger utilisation. Incorrect set-off can lead to interest, penalty and reconciliation issues.
Example
A registered person has the following credits:
- IGST credit: Rs 50,000
- CGST credit: Rs 30,000
- SGST credit: Rs 20,000
Output liability:
- IGST: Rs 40,000
- CGST: Rs 25,000
- SGST: Rs 25,000
Set-off:
- IGST credit of Rs 40,000 used against IGST liability.
- Balance IGST credit Rs 10,000 used against CGST liability.
- CGST liability remaining Rs 15,000 paid from CGST credit.
- SGST liability Rs 25,000 paid from SGST credit of Rs 20,000 and Rs 5,000 cash.
This illustrates why proper credit mapping matters.
How Anuj Desai & Associates Can Help
We help clients determine the correct nature of supply, apply the right tax component, manage place of supply complications and implement correct credit utilisation in their accounting systems.
Contact Anuj Desai & Associates
Email: office@anujdesaiassociates.com
Phone: 9619456656
Website: https://anujdesaiassociates.com
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