GST is a Destination-based tax. GST follows a Multi-Stage collection mechanism. The Goods and Services Tax (GST) will be collected at each stage (from the product manufacturing stage to the delivery to the final consumer) and the tax credit paid in the previous stage is available as a set-off at the next stage of the transaction. This helps eliminate the system of “Indirect tax on taxes”.
Indirect tax structures in India can be clearly understood from the following chart:
Now GST (Goods and Services Tax) replaces all of these indirect taxes collected by the Central and State Governments.
When the Goods and Services Tax is applied, there will be 3 types of applicable Goods and Services Taxes, namely CGST, SGST & IGST.
CGST – Central Goods and Services Tax: Revenue will be collected by the central government
SGST – State Goods and Services Tax: Revenue will be collected by the state government for intra-country sales (that is, sales in certain states in India)
IGST – Integrated Goods and Services Tax: Revenue will be collected by the central government for sales between countries (that is, sales between various states in India)
The CGST, SGST & IGST can be understood better than the following diagram:
|Transaction of goods||New Regime||Old Regime||Points to Note|
|Sale within the particular state||CGST + SGST||VAT + Central Excise/ Service tax||Revenue will now be shared between the Centre and the State|
|Sale to another State||IGST||Central Sales Tax + Excise/ Service Tax||There will only be one type of tax (central) now in case of inter-state sales.|