How GST works in India?

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:

GST Work in India

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.

GST Model

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:

GST Types

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.

 

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Certicom Consulting [ Kedia Arpana & Co ] is a group of Chartered Accountants in the business of Small Business Setup & Statutory Compliance including for Professionals for the past 15 years. We have been an established and popular company with an excellent track record for the best customer satisfaction.

Certicom Consulting

Certicom Consulting [ Kedia Arpana & Co ] is a group of Chartered Accountants in the business of Small Business Setup & Statutory Compliance including for Professionals for the past 15 years. We have been an established and popular company with an excellent track record for the best customer satisfaction.