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Before July 2017, a product moving from Gujarat to Tamil Nadu included central excise, VAT, CST, and possibly entry tax. Five taxes with multiple filings. Credits that partially offset and partially do not.
GST replaced that cascade with three clearly defined taxes. Which one applies to which transaction is the foundation of compliance.
Three main types plus a fourth for union territories.
| Central Goods and Services Tax (CGST) | State Goods and Services Tax (SGST) | Integrated Goods and Services Tax (IGST) | Union Territory Goods and Services Tax (UTGST) |
| Central government levy on intra-state supply. Collected with SGST, and revenue is sent to the centre. | State government levy on intra-state transactions. Collected with CGST, and revenue is sent to the state where the transaction occurs. Rates harmonised nationally. | Applies to inter-state supply, imports, and exports. The central government collects, then apportions the destination state’s share. Replaced the old CST and fixed the inter-state credit chain problem. | SGST equivalent for union territories without a legislature (Chandigarh, Lakshadweep, Andaman and Nicobar, Dadra and Nagar Haveli). Delhi and Puducherry have legislatures and use SGST. |
GST is Goods and Services Tax, a comprehensive indirect tax on the supply of goods and services, introduced on 1 July 2017 under the Goods and Services Tax Act.
Before it, it was central excise on goods, state-administered VAT, service tax, CST on interstate movement, separate rate structures, separate returns, cascading tax-on-tax.
Its impact on the Indian economy has improved compliance through invoice matching, reduced logistics friction from the elimination of border check posts, narrower evasion window.
Why does it matter now?
Wrong GST type on an invoice is not a minor error. It determines which government receives the tax, whether ITC flows correctly, and whether a business stays compliant.
One distinction decides everything: whether it is the same state or a different state?
Intra-state
Inter-state:
Example: Mumbai manufacturer to Delhi buyer, IGST. Mumbai manufacturer to Mumbai retailer CGST and SGST in equal halves.
Credit chain purpose: taxes are borne by the final consumer. Every business in between recovers what it paid.
Wrong GST type on an invoice is a compliance failure, not a technicality.
CGST+SGST charged on an inter-state transaction: buyer cannot use those credits against IGST liability. Credit chain breaks. Credit notes, revised returns, and interest.
IGST charged on an intra-state transaction: revenue goes to the centre instead of being split with the state. Settlement required, business caught in the middle.
For individuals: GST categories determine what you pay at hotels, restaurants, and service providers; the type on your bill depends on whether you and the supplier are in the same state.
ITC offset sequence: CGST credit against CGST first, then IGST. SGST credit against SGST first, then IGST. IGST credit most flexible; it offsets IGST, CGST, or SGST in that order.
Wrong transaction classification wastes ITC. Accumulated SGST when IGST was correct: cash flow mismatch until corrected.
Supply chain planning: IGST is collected and remitted to the centre before the destination state’s share settles. That timing gap has working capital implications for high-volume interstate suppliers.
Penalty avoidance: Sections 73 and 74 of the CGST Act impose demands for short payment and wrongful ITC claims. Differential plus interest is the starting point.
Before determining the type of GST, it is essential to look into whether the supplier is in the same state as the place of supply.
If the same state, then it would be CGST + SGST. If it’s different from IGST.
Complex place of supply cases: GST portal advisory resources. Multi-location businesses: GST-configured ERP automates the determination at the invoice level.
Reality: No, the centre collects, then apportions the destination state’s share through the settlement mechanism.
Reality: No, CGST is central; SGST is state. Collected together but legally distinct, administered by separate authorities.
Reality: No. The GST Council sets rates nationally. States apply what the Council decides.
Reality: No, the transaction determines it. Inter-state goes into IGST. Intra-state invoice has CGST and SGST. No discretion, and the wrong type is a compliance error regardless of intent.
Three types, one decision point. Same state: CGST and SGST in equal halves. Different state, import, or export: IGST. Union territory without a legislature: UTGST. Getting it right at the invoice level keeps the credit chain intact, the right government funding, and Section 73/74 demand notices away.
Same transaction, different recipients. CGST: central government. SGST: state government. Both apply simultaneously at equal halves of the applicable rate on intra-state supply.
Yes, on every intra-state transaction. Always together, always in equal halves. Not applicable to inter-state transactions where IGST applies instead.
Place of supply rules apply. Seller and customer in different states: IGST. Same state: CGST and SGST. E-commerce aggregators must collect TCS (Tax Collected at Source) on transactions facilitated through their platforms.
National rate structure set by the GST Council. States collect their half; they do not independently set SGST rates.
Late filing: Rs. 50/day (Rs. 20 for nil returns). Interest at 18% p.a. on unpaid tax. Persistent non-compliance: Section 73/74 notices, GSTIN cancellation, and ITC denial. Fraud: penalty up to 100% of the tax evaded.
Same total rate for end consumers regardless of type. For businesses with ITC, type determines credit usability. IGST credit is the most flexible. SGST cannot directly offset CGST and vice versa.
Place of supply determination for complex services, ITC reconciliation, classification disputes, audit responses, and GSTR-1/3B/2B reconciliation. GST rules evolve through Council meetings. Staying current requires dedicated attention.
Rate lookup by HSN/SAC, place of supply calculator, ITC utilisation sequence, GSTR reconciliation tools. Multiple entities across states: centralised compliance reduces errors and manual filing time.
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