The Goods and Services Tax, also known as GST, was initially introduced in India on the 1st of July 2017. It consolidated multiple indirect taxes into one singular one, transforming how businesses operated and paid taxes. It also helped the government cut down on unnecessary complexities in the tax system and increase its tax revenue.
Since then, it has become crucial for businesses to understand how GST works to ensure they run smoothly, accurately calculate their tax liabilities, and comply with legal regulations. GST tax includes two main parts—interstate and intrastate GST, both of which are crucial for businesses to determine which type of tax needs to be paid (IGST, CGST, or SGST).
In this article, we discuss the different types of GST, what interstate and intrastate GST are, and the differences between them.
What Are the Types of GST in India?
Prior to the GST regime, several different types of taxes existed. These included Central Excise, VAT, Service Taxes, and others. GST combined these elements into one consolidated tax, split into four components. These include:
1. IGST (Integrated Goods and Services Tax)
2. CGST (Central Goods and Services Tax)
3. SGST (State Goods and Services Tax)
4. UTGST (Union Territory Goods and Services Tax)
Knowing these components is essential. Depending on whether transactions occur within a particular state or union territory or between states, CGST, IGST, and SGST/UTGST will be collected. It is also important to note that GST is a destination-based tax. This means that it is received by the state where the goods are consumed, not necessarily where they are manufactured.
What is the Interstate Meaning in GST?
Interstate GST refers to a situation where goods or services are moved between different Union Territories or states. These interstate transactions are crucial as they facilitate the movement of goods and services across state or union territory borders. However, they also introduce tax compliance and revenue-sharing complexities between state and central governments.
According to the GST regime, these interstate transactions must adhere to GST regulations that are different from those of interstate ones. For example, if a clothing manufacturer based in one state wants to sell garments in another, it is considered an interstate GST supply. The central government would then levy IGST (Integrated Goods and Services Tax), distributed between the two states.
What is Intrastate Meaning in GST?
An intrastate GST supply refers to when the goods are manufactured and sold within the same state. In such cases, CGST, SGST, and UTGST are typically applicable. The central government and the government of the relevant state or union territory impose these. For example, if a manufacturer produces clothing in Karnataka and sells it to a retailer in the same state, it is considered an intrastate transaction. GST rates depend on the type of good or service.
What is the Difference Between Interstate and Intrastate GST?
The main differences between interstate and intrastate GST involve where the transaction takes place, the supply, the type of GST applicable, how GST revenue is distributed, and other factors:
Criteria
Interstate Supply
Intrastate Supply
Meaning
Interstate supplies refer to the movement of goods between different states or union territories.
Intrastate supply is the movement of goods or services within the same union territory or state.
Type of GST Applicable
The IGST (Integrated Goods and Services Tax) is usually levied for interstate transactions.
Two types of GST are typically levied for intrastate transactions. These include the CGST (Central Goods and Services Tax) and the SGST (State Goods and Services Tax) or UTGST (Union Territory Goods and Services Tax).
Levied By
IGST is typically levied by the central government (Union Government of India).
SGST and UTGST are typically levied by the respective state or union territory, whereas the Union Government of India levies CGST.
Tax Rates
All GST rates currently depend on the type of good or service being provided. This also determines the IGST rates. For example, if the GST rate for the item is 12%, that amount will be levied as the IGST.
Here too, GST rates will depend on the good or service being provided. However, the GST will be split equally between the CGST and SGST/UTGST. For example, if the GST is 18%, then the amount to be levied by CGST will be 9%, and the amount levied by SGST/UTGST will be 9%.
Where the Revenue is Distributed
A share of the revenue collected by IGST is typically distributed to the state where the goods or services were sold.
Since both the manufacturing and selling take place within the same state/UT, the state will receive the full share of the SGST/UTGST.
Wrapping Up
Knowing about different tax regulations is crucial when starting or running a business. First, it is important to understand where taxes are being deducted, where exemptions and deductions can be made, and how to calculate tax liabilities. Understanding these regulations also allows businesses to adhere to state and national regulations, avoiding legal penalties and fines.
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What are the differences between IGST, CGST, and SGST?
IGST is Integrated Goods and Services Tax collected during interstate transactions. CGST (the Central Goods and Services Tax) and SGST (State Goods and Services Tax) are typically levied on intrastate transactions.
What are 4 types of GST in India?
The four types of GST in India are Integrated Goods and Services Tax (known as IGST), the Central Goods and Services Tax (or CGST), State Goods and Services Tax (or SGST), and the Union Territory Goods and Services Tax (called UTGST).
What is the difference between direct and indirect tax GST?
Direct taxes are usually levied on profits and income. In contrast, indirect taxes are typically levied on goods and services.
18 March 2025
5 mins read
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