What are the 3 Types of GST?

Goods and Services Tax (GST) was introduced by the Government of India to boost the economic growth of India. GST is considered to be the biggest taxation reform in the history of Indian economy. It was introduced to save time, cost and effort. Goods and Services Tax (GST) Act came into effect in 2017. In order to address the complex system in India, the Government introduced 3 types of GST which are given below.

1. CGST (Central Goods and Service Tax)
2. SGST( State Goods and Service Tax)
3. IGST(Integrated Goods and Services Tax)

As per 2016 GST regime, Union Territory Goods and Service Tax (UTGST) was also introduced to account for all the taxations in the Union Territories of India. The power to make any changes in the GST law is in the hands of GST Council. GST Council is headed by the Finance Minister. One hundred and first amendment act, 2016 introduced the GST in India from July 2017. 

Aspirants would find this topic very helpful in the IAS Exam.

What is Central Goods and Services Tax (CGST)?

Revenue under CGST is collected by the Central Government. CGST subsumes the below given central taxations and levies.

1. Central Excise Duty
2. Services Tax
3. Central Sales Tax
4. Excise Duty
5. Additional Excise Duties Countervailing Duty (CVD)

What is State Goods and Services Tax (SGST)?

Revenue under SGST is collected by the State Government. SGST subsumed the following state taxations.

1. Luxury Tax
2. State Sales Tax
3. Entry tax
4. Entertainment Tax
5. Levies on Lottery

Who Collects IGST (Integrated Goods and Services Tax)?

IGST is charged when there is movement of goods from one state to another state. The revenue will be collected by the central government and accordingly will be shared between the Union and states in the manner prescribed by Parliament or GST Council.

Latest Context on Goods and Services Tax-

The several States have made clear that the onus is on the Centre to borrow from the market to make good any shortfall in the Compensation Fund. They stressed that the States had agreed to the implementation of the GST only on the basis of the “unequivocal commitment given by the Government of India to compensate the States for any revenue loss”.

Observing that States had not only suffered severe losses in revenue in the wake of the pandemic but had also been at the forefront of the battle to prevent the spread of the disease. Hence, any delay in ensuring the compensation payments would compromise essential capital spending by the States to restart the economy effectively.

The Centre and the States were cognisant of the substantial impact on GST collections from the last fiscal year’s economic slowdown and more recently the lockdowns and COVID-19-related curbs that have severely shrunk the economy.

What is GST Compensation?

1. The Constitution (One Hundred and First Amendment) Act, 2016, was the law that created the mechanism for levying a nationwide GST.
2. Into this law there is a provision to compensate the States for loss of revenue arising out of implementation of the GST. The adoption of the GST was made possible by the States ceding almost all their powers to impose local-level indirect taxes and agreeing to let the prevailing multiplicity of imposts be subsumed under the GST.
3. While the States would receive the SGST (State GST), and a share of the IGST (Integrated GST), it was agreed that revenue shortfalls arising from the transition to the new indirect taxes regime would be made good from a pooled GST Compensation Fund for a period of five years that is set to end in 2022.
4. This corpus in turn is funded through a compensation cess that is levied on so-called ‘demerit’ goods. The computation of the shortfall is done annually by projecting a revenue assumption based on 14% compounded growth from the base year’s (2015-2016) revenue and calculating the difference between that figure and the actual GST collections in that year (as spelt out in Section 7 of the GST (Compensation to States) Act, 2017).
5. For the 2020-21 fiscal year, the revenue shortfall has been anticipated at ₹3 lakh crore, with the Compensation Fund expected to have only about ₹65,000 crores through cess accruals and balance to pay the compensation to the States.

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Features of GST

• Applicable On the supply side: GST is applicable on ‘supply’ of goods or services as against the old concept on the manufacture of goods or on sale of goods or on provision of services.
• GST rates to be mutually decided: CGST, SGST & IGST are levied at rates to be mutually agreed upon by the Centre and the States. The rates are notified on the recommendation of the GST Council.

• Multiple Rates: Initially GST was levied at four rates viz. 5%, 12%, 16% and 28%. The schedule or list of items that would fall under these multiple slabs are worked out by the GST council.
• Destination-based Taxation: GST is based on the principle of destination-based consumption taxation as against the present principle of origin-based taxation.
• Dual GST: It is a dual GST with the Centre and the States simultaneously levying tax on a common base. GST to be levied by the Centre is called Central GST (CGST) and that to be levied by the States is called State GST (SGST).
  • Import of goods or services would be treated as inter-state supplies and would be subject to Integrated Goods & Services Tax (IGST) in addition to the applicable customs duties.

Multiple Choice Question

Consider the following statements

1. GST was first recommended by the Kelkar committee task force.The first attempt to pass GST was made in 2011 by introducing the Constitution (115th Amendment) Bill in the Lok Sabha, which lapsed due to dissolution of 15th Lok Sabha.
2. The power to make any changes in the GST law is in the hands of GST Council. The GST Council is headed by the Finance Minister. One hundred and first amendment act, 2016 introduced the GST in India from July 2017. 
3. The reform of India’s indirect tax regime was started in 1986 by Vishwanath Pratap Singh, Finance Minister in Rajiv Gandhi’s government, with the introduction of the Modified Value Added Tax (MODVAT). Subsequently, Prime Minister P V Narasimha Rao and his Finance Minister Manmohan Singh, initiated early discussions on a Value Added Tax (VAT) at the state level.
4. The purpose of HSN codes is to make GST systematic and globally accepted.

HSN codes will remove the need to upload the detailed description of the goods.This will save time and make filing easier since GST returns are automated.

Choose the correct answer from the below-given options

A) None of the above statements are true.

B) Only statements 2, 3, and 4 are true.

C) Only statements 1, 3, and 4 are true.

D) All the above statements are true.

Answer: D

The above details would help candidates prepare for UPSC 2023.