Every bill you receive, be it from a restaurant, an online shopping site, or a service provider, includes multiple GST components like CGST, SGST, and IGST. These terms may sound similar but their inherent meaning holds a unique value for both consumers and business owners.
Goods and Services Tax (GST) is India’s biggest tax reform, designed to simplify indirect taxation. However within GST, there are multiple layers, and Central Goods and Service Tax (CGST) plays a crucial role.
For business owners, understanding CGST is necessary for compliance, correct tax filing, and avoiding penalties. For consumers, it helps to know where their money goes. This blog will simplify what is CGST, its features, rules, slab rates, and its relation to SGST and IGST, so you’ll never be confused about your tax invoices again!
Table of Contents
Understanding the CGST Act
The CGST Act was introduced in 2017 as a part of the GST framework to replace multiple indirect taxes levied by the central government. Before GST, businesses had to deal with excise duty, service tax, central sales tax, and more, creating confusion and compliance headaches.
With CGST, the central government collects a tax on intra-state supplies of goods and services, meaning any transaction that happens within the same state. The revenue is then used for national welfare programs, infrastructure development, and government expenditures.
Example of CGST in Real Life
Let’s break it down with a simple example:
There is a men’s clothing store in Mumbai and they sell a designer jacket worth ₹5,000 to a customer in Maharashtra. Since the transaction is within the state, the GST applicable is 18%, which is divided equally into:
- CGST (9%) → ₹450 (Collected by the central government)
- SGST (9%) → ₹450 (Collected by the state government)
Total GST = ₹900
Final Price Paid by Customer = ₹5,900
However, if they were to ship the same jacket to Delhi, the tax wouldn’t be divided into CGST and SGST. Instead, an IGST (Integrated GST) of 18% would apply, which goes to the central government.
Key Features of CGST
What are the essential features of CGST?
- Single Tax System – Eliminates the need for multiple central taxes like excise duty and service tax.
- Applicable Only on Intra-State Sales – If the buyer and seller are in the same state, CGST + SGST applies.
- Uniform Rate Across India – No state-wise variation; CGST rates are consistent nationwide.
- Seamless Input Tax Credit (ITC) – Businesses can claim the credit on CGST paid on purchases, reducing their overall tax liability.
When does CGST apply?
- On the sale of goods or services within the same state.
- On e-commerce transactions where the buyer and seller are in the same state.
- On services like restaurants, salons, or repairs when availed within the state.
Where is CGST used?
- In retail and wholesale transactions
- In e-commerce platforms like Amazon, Flipkart
- In restaurants, hotels, and service industries
CGST Rules You Should Know
The central goods and service tax ensures compliance and defines how businesses should collect, pay, and report taxes. Some rules include:
- Rule 3 of CGST: Businesses with a turnover of up to ₹1.5 crores can opt for the Composition Scheme and pay tax at a fixed rate instead of regular GST.
- Rule 32: Special tax provisions for second-hand goods dealers, ensuring they don’t pay GST on the full value but only on the margin.
- Rule 89: Allows taxpayers to claim refunds on excess tax paid under CGST.
Following these rules helps businesses avoid penalties and perform smooth tax filing.
CGST Slab Rates: How Much Tax Do You Pay?
CGST follows multiple slab rates depending on the type of goods and services:
- 5% CGST (Total GST = 10%): Essential items like packaged food, and hotel stays under ₹1,000.
- 9% CGST (Total GST = 18%): Electronics, clothing, and most services like restaurants and salons.
- 14% CGST (Total GST = 28%): Luxury goods like cars, tobacco, and high-end hotels.
These slab rates ensure fair taxation—essentials are taxed lower, while luxury items bear a higher tax burden.
Benefits of Central Goods and Services Tax
- Eliminates Tax Cascading: No more "tax on tax" situations, making goods cheaper in the long run.
- Boosts Compliance: A single tax structure simplifies filing for businesses.
- Uniformity Across India: No more varying tax rates for different states.
- Encourages Ease of Doing Business: Makes India a tax-friendly environment for businesses and startups.
What is the Formula for CGST?
The formula to calculate the central goods and service tax is simple and easy to follow:
CGST = (Transaction Value × CGST Rate) / 100
Example:
Let’s say a product is sold for ₹10,000, and the GST slab is 18%. In this case, the CGST rate would be 9% (half of 18%).
To calculate the CGST amount:
(10,000 × 9) / 100 = ₹900
This calculation helps businesses determine the correct CGST to charge and remit to the government.
Documents Required for CGST Registration
To register for CGST, businesses need:
- PAN Card & Aadhaar Card
- Proof of Business Registration
- Bank Account Details
- Address Proof (Electricity Bill/Rent Agreement)
- Digital Signature (For companies & LLPs)
Why Are There Three Categories in GST?
The three GST categories exist to manage taxation efficiently:
- CGST (Central GST): Collected by the Central Government for sales within the state.
- SGST (State GST): Collected by the State Government for intra-state sales.
- IGST (Integrated GST): Collected by the Central Government for inter-state sales.
Understanding the difference between CGST SGST and IGST helps businesses apply the correct tax type on their invoices.
You can also check out our blog on what is IGST here.
Conclusion
Understanding CGST is valuable for everyone who encounters it daily, whether you're buying a meal at a restaurant, shopping online, or paying for a service. This tax reform is designed to make our tax system more efficient and transparent.
CGST is not applied to instant personal loans. Goods and Services Tax (GST), including CGST, is generally applicable to the supply of goods and services. Loans, being financial transactions, are exempt from GST. However, if a financial institution charges fees for services associated with loans (like processing fees, late payment fees, or other services), GST may apply to those specific charges, but not to the principal loan amount itself.
Keep these insights in mind, and you'll always know exactly what’s going on with your tax invoices. And if you are looking for quick loans and concerned about the applicable taxes on it, contact us today.
