by Levy of GST:
The Goods and Services Tax (GST) is a destination-based tax that is levied on the supply of goods or services or both. It replaces all other indirect taxes like excise duty, service tax, VAT, etc. GST is levied at every stage of the supply chain, from manufacturing to final consumption.
Under the GST system, there are three types of taxes: Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST) or Union Territory Goods and Services Tax (UTGST), and Integrated Goods and Services Tax (IGST). The levy of CGST, SGST/UTGST, and IGST is governed by Section 9 of the CGST Act, 2017.
Collection of GST:
The GST collected on the supply of goods or services is divided into two parts: the central component (CGST) and the state/UT component (SGST/UTGST). The GST is collected by the supplier of goods or services and deposited with the government. The supplier can claim input tax credit (ITC) on the GST paid on inputs, which reduces the GST liability.
If the supply is inter-state, IGST is levied, which is collected by the Centre. The IGST collected is distributed between the Centre and the respective states/UTs. The distribution of IGST is governed by the IGST Act, 2017.
Example:
Suppose a manufacturer in Tamil Nadu sells goods worth Rs. 1 lakh to a trader in Kerala. The GST rate applicable to the goods is 18%. Here’s how the levy and collection of GST works in this scenario:
- The manufacturer charges IGST at 18% on the transaction, which amounts to Rs. 18,000.
- The IGST collected by the manufacturer is deposited with the Centre.
- The Centre then distributes the IGST to the respective states based on the destination principle. In this case, Kerala will receive the SGST/UTGST portion of the IGST collected.
- The trader in Kerala can claim input tax credit on the IGST paid, which reduces their GST liability.
