CGST (Central Goods and Service Tax)

Central Goods and Services Tax (CGST) is an important part of the Indian tax system under the Goods and Services Tax (GST) framework. It is a tax collected by the central government on goods and services sold within a state.

CGST was introduced in 2017 to replace several other taxes, such as excise duty and service tax. This change made the system simpler and more organised. By reducing the chain effect of taxes, it helps businesses operate more efficiently with improved transparency.

It also ensures better tax compliance and boosts government revenue collection, supporting India’s economy. Read more to learn about what is CGST in detail.

What is CGST?

Central Goods and Services and Taxes (CGST) is one of the four main components of the GST system in India. It is governed by the CGST Act of 2017 and applies to intra-state transactions,  to intra-state transactions, meaning sales and services conducted within a single state.

The tax is collected by the central government and works together with the State Goods and Services Tax (SGST), which is collected by state governments. CGST helps create a common tax platform by combining various central taxes, thus simplifying business compliance.

Key Features:

• Applies to intra-state transactions: Transactions where the buyer and seller are in the same state.
• Uniform rate: Set by the central government for consistency across all states.
• Input tax credit: Businesses can claim credit for CGST paid on purchases.
• Reduction in tax complexity: Combines multiple central taxes into one.

CGST Example:

A retailer in Maharashtra sells products worth ₹1000 to a customer in the same state. If the CGST rate is 9%, the shopkeeper will charge ₹90 as CGST. The tax applied here will be a combination of CGST and SGST, such that the revenue generated by selling the product is distributed between the state and central government.

What Are the Applicable CGST Tax Sl​ab Rates?

Key Features of the CGST Act

• Comprehensive Framework: The CGST Act outlines the rules and provisions for taxing the intrastate transactions of goods and services. It provides a clear and consistent structure for businesses and individuals.
• Dual GST structure: CGST works with SGST for intrastate supplies. This means that the revenue generated is shared by both the central and state governments.
• Time of Supply Rules: They define the specific time at which the tax is to be paid, ensuring transparency in transactions.
• Valuation of Supply: It provides detailed guidelines on determining the value of taxable supplies, including discounts and other considerations.
• Input Tax Credit (ITC): It enables taxpayers to claim tax credits paid on purchases, reducing their tax liability.
• Anti-Profeetering Clause: Ensures that the benefits of tax rate reductions are passed on to consumers.
• Penalties for Non-Compliance: It also specifies penalties for delays or violations, which encourages following the laws and timelines.

Key CGST Rules

• Registration Requirements: Businesses exceeding a specified turnover threshold must register under CGST.
• Tax Invoice Guidelines: Clearly outlines the format and details required in a tax invoice, ensuring consistency and accuracy.
• Return Filing:Specifies the process for filing monthly, quarterly, and annual GST returns.
• Input Tax Credit (ITC) Eligibility: This defines conditions under which ITC can be claimed, such as timely filing of returns.
• Payment of Tax: Tax payments must be made electronically (online), which streamlines the process for taxpayers.
• Composition Scheme: Offers a simplified tax option for small businesses with turnover below a certain limit.
• Audits and Assessments: The CGST rules require periodic audits and assessments to ensure compliance and identify discrepancies.
• Reverse Charge Mechanism: Details cases where the recipient, instead of the supplier, is liable to pay GST.

Documents Required for CGST

• PAN Card: Mandatory for GST registration
• Business registration proof: Documents like incorporation certificate or partnership deed.
• Identity proof: Aadhaar card, voter ID or passport of the business owner.
• Address proof: Rent agreement, electricity bill or property tax receipt for the business place.
• Bank Account Details: Cancelled cheque or bank statement
• Digital signature: Required for online GST registration.
• Photographs: Passport-size photographs of the business owner or authorised signatories.

How Do You Calculate Central Goods and Service Tax?

Calculating CGST is an essential aspect of ensuring compliance with the GST system. CGST is charged on the taxable value of goods or services sold within the same state. Here's a simple guide to understanding and calculating CGST:

The basic formula for CGST is:

CGST = (Taxable Value of Goods or Service​s × CGST Rate) / 100​

Step-by-Step Calculation:

1. Identify the Taxable Value: Determine the price at which goods or services are sold, excluding any GST.
2. Check the CGST Tax Slab Rates: Refer to the applicable CGST rate for specific goods or services, which is usually specified by the government.
3. Apply the Formula: Multiply the taxable value by the CGST tax slab rate, then divide by 100 to find the CGST amount.

Calculation Explained with a CGST Example

Imagine a furniture shop selling a table for ₹15,000 within the same state. If the CGST rate is 9%, the CGST amount is calculated as follows:

CGST = (₹15,000 × 9) / 100 = ₹1,350

This means the customer will pay ₹1,350 as CGST in addition to the table's price.

This is also applicable to a service. For example, consider a software development company providing website design services within the same state. If the service charge is ₹50,000 and the CGST rate is 9%, the CGST calculation would be:

CGST = (₹50,000 × 9) / 100 = ₹4,500

This means the client pays ₹4,500 as CGST in addition to the service charge.

Using Online Calculators

• You can also use an online calculator to calculate the applicable tax liability based on the tax slab rate for a particular service or product. This will help you calculate the liability accurately and instantly.
• Go to an online calculator, such as Paytm’s GST calculator. Alternatively, you can also log into the official GST website and access their tools and calculation features.
• In the calculator tool, input the applicable CGST rate and taxable value. The calculator will give you the amount you need to pay, saving you time and effort.

Key Points to Remember:

• Always ensure the taxable value excludes GST.
• Verify the correct CGST rate for the product or service.
• Use reliable online calculators for quick results.

Benefits of Complying with CGST Rules

Compliance with CGST rules ensures that paying taxes is simple and quick. Following are the benefits that help you as a business owner or an individual paying taxes:

• Organised Operations: Central Goods and Service Tax eliminates the need to file other types of taxes and unifies them into one system. This saves time and reduces complexity.
• Avoidance of Penalties: When you comply with all CGST rules regularly, you reduce the chances of incurring penalties and fines. This saves your finances and helps you plan better.
• Input Tax Credit (ITC): Business owners become eligible to claim credits on taxes paid, which reduces the overall tax liability.
• Builds Credibility: Customers or potential clients trust you better when you comply with these rules. It improves your reputation in the marketplace and among stakeholders.
• Easier audits and assessments: Timely tax payments and accurate records reduce the stress and complexity during audits.
• Access to Government Schemes: Businesses that comply more with rules can benefit from government incentives or schemes.
• Improved Cash Flow Management: Timely compliance also reduces unexpected liabilities, which eventually improves financial planning.

Impact of Central Goods And Service Tax on Indian Business

The introduction of CGST has significantly transformed the business environment in India. Combining multiple central taxes into one has streamlined the tax structure and reduced compliance costs for businesses. CGST tax has enhanced transparency, reduced tax cascading, and encouraged the formalisation of businesses, particularly in small and medium enterprises.

Key Impacts:

• Simple Tax Structure: Combines multiple taxes into one structure, which simplifies the tax-paying process and reduces complexities.
• Cost Reduction: Since all taxes are collected in one place, it reduces production costs, enhancing profitability and cost-effectiveness.
• Boosts Business Trades: The clear guidelines and simplified processes ease business trades and attract more investments.
• Helps Small Businesses: If the turnover of small businesses is less than the limit stated, they do not have to go through the hassles of filing their CGST liability.
• Encourages Formalisation: Pushes unregistered businesses to formalise operations under GST.
• Supports a Unified Market: Promotes intra-state trade by removing state-level tax barriers.
• Imposes Challenge: While it reduces the complex process of filing multiple taxes, business owners find it difficult to keep track of changes and deadlines. They also need to maintain proper documentation and careful paperwork.

Other Categories of GST

India’s GST framework is divided into three categories other than Central Goods and Service Tax to ensure efficient tax collection and revenue sharing:

1. State Goods and Services Tax (SGST): This is levied by state governments on intra-state supplies. This type of tax helps in the state's revenue collection. It replaces state-level taxes like VAT, luxury tax and entertainment tax, ensuring that the revenue generated stays with the state.
2. Integrated Goods and Services Tax (IGST): IGST applies to inter-state transactions and imports. The central government collects it and later shares it with the states. This prevents double taxation and simplifies tax collection on transactions crossing state borders.
3. Union Territory Goods and Services Tax (UTGST): UTGST is similar to SGST but applies specifically to Union Territories without a legislature, such as Chandigarh and Lakshadweep. This ensures that Union Territories have a fair share of tax revenue.

Importance of These Distinctions

• Facilitates smooth tax administration across different regions.
• Promotes cooperative federalism by ensuring both central and state governments receive their due share.
• Simplifies compliance for businesses operating in multiple locations.

By categorising GST into these distinct types, India’s taxation system ensures transparency, fairness and efficiency in tax collection and distribution.

Difference Between Categories of GST: CGST, SGST, IGST

Conclusion

Central Goods and Services Tax (CGST) has played a key role in unifying India’s tax system by replacing various central taxes with one. This change under the CGST Act has made it easier to follow tax rules, reduced extra taxes on the same product and improved intra-state transactions.

Together with SGST and IGST, CGST helps maintain a smooth and consistent tax system across the country. It has also impacted sectors like health insurance by affecting premium costs and tax structures. However, the tax deductions can be claimed for premiums paid towards our health insurance plans. Knowing these details helps businesses and consumers manage the GST system better.

GST and Health Insurance

GST has a direct impact on health insurance premiums by levying an 18% tax, making policies slightly more expensive for policyholders. Here is how GST affects health insurance:

• Increased Premiums:Earlier, the service tax was 15%, but GST raised it to 18%, which increased the cost of health insurance premiums.
• CGST and SGST Application: For intra-state purchases of health insurance, the tax on premiums consists of a combination of CGST and SGST. Rates applied for both types of GST are equal.
• Tax Benefits: Health insurance policyholders can claim deductions under Section 80D ​for premiums paid. This reduces their taxable income and saves them money.
• Standardised Tax Structure: GST simplifies tax calculation on health insurance policies, ensuring transparency.
• Corporate Policies: Companies offering health insurance to employees must account for GST when calculating costs.

Although GST has increased costs slightly, its streamlined structure has made health insurance policies easier to understand and manage. So, invest in Reliance health insurance to secure protection against unexpected health emergencies and reduce tax liability.

Frequently Asked Questions (FAQs)

• What is CGST tax, and when is it applicable?

CGST stands for Central Goods and Services Tax, levied by the Central Government on intra-state supplies of goods and services. It applies when a transaction occurs within a single state, complementing the State GST (SGST) imposed by the respective state government. Both CGST and SGST are charged simultaneously on the same transaction.

• Can the Input Tax Credit (ITC) of CGST be used to pay SGST liability?

No, the ITC of CGST cannot be utilised for SGCT liability. ITC of CGST tax can be used to offset CGST and IGST liabilities but not SGST. Similarly, the ITC of SGST can be used against SGST and IGST liabilities but not CGST. This segregation ensures proper revenue sharing between the central and state governments.

• How does IGST work in inter-state transactions?

The central government levies the Integrated Goods and Services Tax (IGST) on the interstate supply of goods and services, including exports and imports. In this case, the seller charges IGST, which is then available as ITC to the buyer in another state. This makes ITC across the states easy and maintains the integrity of the input tax chain.

• Has GST affected health insurance premiums in India?

Yes, the implementation of GST has impacted health insurance premiums. Under GST, the tax rate on health insurance services increased from the previous service tax rate of 15% to 18%. This hike has led to higher premiums for policyholders.

However, GST has also brought uniformity in taxation. Additionally, the premium payments made towards health insurance by Reliance General Insurance ​are eligible for tax claims under Section 80D.

• Who needs to register under CGST?

Any business with an annual turnover exceeding the threshold limit of ₹20 lakh (₹10 lakh for special category states) must register under GST, which includes CGST. Businesses engaged in inter-state supplies are also required to register, regardless of turnover.

• Are all goods and services taxed under CGST?

No, certain goods and services are exempt from CGST. These include unprocessed food items, healthcare services, and educational services. Additionally, specific categories like alcohol and petroleum products are outside the GST ambit and are taxed separately by state governments.

Disclaimer:

*T&C Apply. For more details on risk factors, terms conditions, brochure, and exclusions, please read the policy wording and CIS carefully before concluding a sale.

Tax benefits are subject to conditions under Section 80D of the Act and amendments thereof. The tax laws are subject to amendments/changes from time to time. Please consult your tax advisor for details.