What Are the 4 Types of GST? | Which One Applies to You?

Difference between types of GST

As we already mentioned there are 4 types of GST in India. Let’s discuss them one by one.

  • Central Goods and Services Tax (CGST)
  • State Goods and Services Tax (SGST)
  • Union Territory Goods and Services Tax (UTGST)
  • Integrated Goods and Services Tax (IGST)

What is the Central Goods and Services Tax (CGST)

CGST is a single tax that is levied by the central government on the supply of goods and services. It is collected by the Central Government on behalf of the States.

Here are the CGST rates:

What is State Goods and Services Tax (SGST)

A state goods and services tax (SGST) is in addition to the central goods and services tax (CGST) and the union territory goods and services tax (UTGST). The SGST is collected by the state government and then shared with the central government. The SGST is used to fund state-level infrastructure projects and programs.

Here are the SGST rates:

If you want to know more about the GST Rates read the article: GST Goods and Services Rates in 2022

What is Union Territory Goods and Services Tax (UTGST)

The Union Territories Goods and Services Tax (UTGST) is a single tax on the supply of goods and services levied by the Union Territories. It is collected by the Union Territories on behalf of the Central Government.

UTGST is levied at 9% on all intra-Union Territory supplies of goods and services. The UTGST rate is uniform throughout each Union Territory.

What is Integrated Goods and Services Tax (IGST)

The Integrated Goods and Services Tax (IGST) is a single tax on the supply of goods and services. It is collected by the Centre on behalf of States/Union Territories.

The IGST is made up of the following:

  • Central Goods and Services Tax (CGST)
  • State Goods and Services Tax (SGST)
  • Union Territory Goods and Services Tax (UTGST)

GST is levied by the government at rates determined by Parliament, not exceeding 20% on goods and 10% on services.

Here are the IGST rates:

These are all the types of gst. Now let’s move on to how to actually calculate them.

How to Calculate GST?

To know, how to calculate GST, you need to know the following:

  1. The taxable value of the good or service: It is the value on which tax is levied. Basically, the value is determined by the GST rate and the GST-inclusive price of the good or service (GST-inclusive price means the price of the good including all taxes. It's calculated by adding the GST rate to the cost of the good or service, including any duties and levies).
  2. The applicable tax rate: The GST rate is set by the government and is different for different types of supplies. There are four types of GST rates- 0%, 5%, 12% and 18%. The GST rate is 10% for most goods and services, though.
  3. The GST amount: It is calculated on the taxable value of the goods or services. The taxable value is the price at which the goods or services are sold minus the GST amount.

You just need to multiply the taxable value by the applicable GST rate, and that's it.

This calculation is usually done in the form of an invoice. If you come across some article that states that there are several types of invoices in GST, disregard it. GST only recognises Tax Invoice format.

Here’s what the calculation actually looks like on an actual GST invoice format. This GST format is standard.

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Input Tax Credit under GST

The input Tax credit is the backbone of GST. It is the credit that a taxpayer gets against the GST paid on goods and services. It is available for both CGST and SGST. You can use the credit to reduce your tax liability.

Registered taxpayers in India may claim it for GST paid on capital goods, input services, and intermediate goods. The credit may be used to pay the GST due on the final product or service and can be carried forward for up to 20 years.

Who are the taxable persons under GST?

Taxpayers under GST are broadly classified into 3 types:

  1. Composition Taxpayer: Composition taxpayers pay a flat tax based on their total taxable turnover. Manufacturers pay 1%, restaurants 2.5%, and traders pay 5%. Composition taxpayers do not qualify for input tax credits.
  2. Regular Taxpayer: Regular taxpayers are taxed based on GST rates applicable to the product or service they provide. These taxpayers can take ITC on capital goods and input services used in the business. The regular taxpayer needs to file returns on a monthly or quarterly basis, depending on the business turnover.
  3. Casual Taxpayer: Casual taxpayers are not required to register under GST. Still, they need to do so if their taxable turnover crosses Rs 20 lakh in a financial year. These taxpayers are taxed at the highest rate of 18%. There is no input tax credit available for them and they are not allowed to take ITC on capital goods or input services used in the business.

To take advantage of the new indirect tax system, traders and businesses must register as GST (Goods and Services Tax) participants. Based on their annual turnover, the GST Council has categorized traders and businesses into four groups.

The 4 categories are:

  1. Microbusinesses: Turnover up to Rs 20 lakh
  2. Small enterprises: Turnover from Rs 20 lakh to Rs 75 lakh
  3. Medium enterprises: Turnover from Rs 75 lakh to Rs 250 lakh
  4. Large enterprises: Turnover above Rs 250 lakh have to be registered under the GST regime, whether they are making taxable supplies or not.

Types of Registration in GST

There are 4 types of GST registration:

  • Normal registration: This is for businesses that make taxable supplies (i.e. supplies that attract GST) of more than Rs 20 lakh in a financial year.
  • Composition scheme: This is for businesses that make taxable supplies of less than Rs 75 lakh in a financial year. They can pay tax at a fixed rate (1%, 2% or 5%, depending on the business) and are not allowed to claim the input tax credit.
  • Limited registration: This is for companies that make only exempt supplies (i.e. supplies that don't attract GST). They can't claim input tax credit on the goods and services they use to make these exempt supplies.
  • Casual registration: This is for businesses making taxable supplies but don't want to be registered under the regular or composition scheme. They can choose to pay tax at a rate of 6% on their total taxable supplies.

How GST returns work

Businesses are required to file GST returns on a periodic basis. The due date for filing GST returns is generally the 20th of the month following the month for which returns are filed.

A GST return is a document containing information about your sales, purchases, the tax collected on sales (output tax), and the tax paid on purchases (input tax). In order to get your GST refund, you must pay your tax liabilities (money you owe the government).

The GST system requires all business owners and dealers to file GST returns based on the type of business or transaction they conduct.

If you want to learn more about the types of GST returns see this article: Types of GST Returns | All You Need to Know.

Why do we need GST

Now that we know what types of GST there are, let's ask a question: why do we even need it?

India's last indirect tax system was a complex web of central and state taxes. These include the Central Sales Tax, the Value-Added Tax, the Octroi and Entry Tax, the Purchase Tax, the Luxury Tax, and the Entertainment Tax.

Then GST came along and replaced them all:

  • Central Excise Duty
  • Service Tax
  • State VAT
  • Central Sales Tax
  • Entertainment Tax (not levied by all states)
  • Luxury Tax
  • Taxes on lottery, betting, and gambling

In most cases, these taxes have been replaced by the GST. It's a single tax that's collected at all stages of the supply chain – from manufacture to sale to consumption. This reduces the cost of doing business in India. It will also make Indian products more competitive in the global market.

If you want to know how GST works in India read the article.

Benefits of GST

The advantages of GST include:

  • Increased government revenue
  • Increased transparency in the tax system
  • Reduced business costs,

As well as other more general benefits like:

  • Increased economic efficiency
  • Increased investment
  • Increased government revenue.

For small businesses, these are the benefits it has:

  1. The GST-registered business will be able to claim an input tax credit for the GST paid on the goods and services purchased for the company. This will help to reduce the cost of doing business.
  2. There will be a single point of tax collection and administration, which will make the tax system more efficient.
  3. GST is a destination-based tax, which means that the final consumer pays the tax of the good or service. This helps promote fair competition among businesses and prevents businesses from shifting their profits to other states or countries.
  4. GST is a comprehensive tax that covers all types of goods and services, making it easier for businesses to comply with the tax laws.

What is a GSTIN?

GSTINs are unique identifiers for businesses registered under the Goods and Services Tax (GST) regime in India. The GSTIN number is composed of 15 digits issued by the GST Network (GSTN). It is mostly used to track transactions and taxes.

To obtain a GSTIN, businesses need to register for GST with the GSTN.

The registration process is simple and can be completed online in a few minutes. The GST registration process is entirely online and requires no documents or meetings.

The first step is to visit the GST Website and click on the 'New Registration' tab. This will take you to the registration page, where you need to enter the following details:

  1. The legal name of the business
  2. Trade name (if different from legal name)
  3. PAN or GSTIN
  4. Email ID
  5. Mobile number
  6. Address of principal place of business
  7. Type of entity (proprietorship, partnership, private limited company, public limited company)
  8. In case of a proprietorship or partnership, details of partners including name, address, PAN
  9. In the case of a company, details of directors including name, address, PAN

After entering all the details, click on 'Submit'.

The system will generate an ARN (Application Reference Number) which will be sent to your registered email ID and mobile number. This ARN can be used to track the progress of your application.

If you want to find the GSTIN of some other company there are two way you can do it.

The first way is to search for it here on the GSTIN website: Find Business GSTIN Number. The second way is to well...to just ask the business for their GSTIN number. It's public information so there's no reason for anyone to hide it.

What is GST E-way Bill?

A GST e-way bill (EWB) is a document that is generated when goods (worth more than Rs. 50,000 within or outside of the State) are transported from one place to another throughout India. The e-way bill contains information about the goods, such as their description, quantity, and value. It also includes the name and contact information of the person transporting the goods.

The e-way bill is used to track goods' movement and helps reduce tax evasion.

How to Create an e-way bill?

E-way bill can only be generated on the GST portal.

To create an e-way bill, you need to log in to the GST Portal.

Once logged in, go to the 'E-Way Bill' section and click on 'Create New'.

You will then need to enter the following details:

  1. The transporter's GSTIN.
  2. The consignor's GSTIN.
  3. The consignee's GSTIN.
  4. The name of the goods.
  5. The quantity of the goods.
  6. The HSN code of the goods.
  7. The value of the goods.
  8. The reason for transport.
  9. The date of transport.

Once you have entered all the details, click on 'Create EWB'.

If you want to know more about the GST Portals read the article: Register yourself on the GST portal.

If you need a complete guide on how to generate E-way Bill, learn here.

Why is the e-way bill important?

The e-way bill is important because it:

  1. Helps in the efficient movement of goods.
  2. The e-way bill will reduce paperwork for both the taxpayers and the tax department.
  3. Prevents tax evasion: The e-way bill will help prevent tax evasion as it will create a transparent system.
  4. Eliminates the need for manual filing: The e-way bill will eliminate the need for manual filing of documents.
  5. Reduces transit time: The e-way bill will reduce the transit time of goods as it will provide real-time information on the movement of goods.
  6. Helps to track the movement of goods.

The Main Features of GST

That's all we need to cover on the topic of the GST types. Feel free to reach out if you have any questions about it.

Let's review what the main features of GST are:

  • It is a single tax on the supply of goods and services across the country.
  • It subsumed all other indirect taxes levied on goods and services by the Centre and States.
  • GST is collected on all supplies of goods and services, except for a few exempt items.
  • GST is payable by the supplier of goods or services.
  • The supplier can claim credit of GST paid on inputs used in making the taxable supply.
  • GST credit can be used to pay GST due on the subsequent supply.