by Before the 101st Amendment to the Constitution of India, both the Central (Union) and State Governments had the power to impose indirect taxes under their respective lists of powers, which were defined in the Seventh Schedule of the Constitution. The Central Government had the power to impose taxes on customs duties, excise duties, and service tax, while the State Governments had the power to impose taxes on sales tax and value-added tax.
However, the implementation of GST after the 101st Amendment changed the power dynamics of indirect taxation. Under the GST regime, both the Central and State Governments have the power to levy and collect taxes on the supply of goods and services. The GST system replaced all previous indirect taxes, including the taxes levied by the Central and State Governments.
The GST system is governed by the following laws:
- Central Goods and Services Tax Act, 2017 (CGST Act): This law provides for the levy and collection of taxes by the Central Government on the supply of goods and services within the country.
- State Goods and Services Tax Act, 2017 (SGST Act): This law provides for the levy and collection of taxes by the State Governments on the supply of goods and services within their respective states.
- Integrated Goods and Services Tax Act, 2017 (IGST Act): This law provides for the levy and collection of taxes by the Central Government on the supply of goods and services between different states or union territories.
- Goods and Services Tax (Compensation to States) Act, 2017: This law provides for the payment of compensation to the State Governments for the loss of revenue due to the implementation of GST for a period of five years.
Under the GST regime, the Central Government and the State Governments have equal powers to levy and collect taxes on the supply of goods and services. The taxes collected by the Central Government under CGST are divided between the Central and State Governments based on the recommendations of the GST Council. Similarly, the taxes collected by the State Governments under SGST are retained by the respective state governments.
In conclusion, the power to impose indirect taxes by the Central (Union) and State Governments has undergone a significant change after the implementation of GST. Under the GST regime, both the Central and State Governments have equal powers to levy and collect taxes on the supply of goods and services.
An example table that shows the division of tax revenue between the Central (Union) and State Governments under the GST regime:
| Tax Type | Applicable to | Tax Amount | Tax Rate | Tax Revenue Share (Central Govt) | Tax Revenue Share (State Govt) |
| CGST | Sale of goods and services within the country | ₹ 50,000 | 10% | ₹ 2,500 | – |
| SGST | Sale of goods and services within the state | ₹ 1,50,000 | 12% | – | ₹ 18,000 |
| IGST | Sale of goods and services between different states | ₹ 25,000 | 18% | ₹ 4,500 | ₹ 4,500 |
| Total Tax Paid | ₹ 7,000 | ₹ 22,500 |
In this example, let’s assume that a business called ABC Pvt. Ltd. sells goods and services within the country and between different states. The company’s total taxable value is ₹ 2,25,000.
ABC Pvt. Ltd. pays CGST on the supply of goods and services within the country at the rate of 10%, which amounts to ₹ 2,500. This tax revenue is retained by the Central Government.
Similarly, the company pays SGST on the supply of goods and services within the state at the rate of 12%, which amounts to ₹ 18,000. This tax revenue is retained by the State Government.
Finally, the company pays IGST on the supply of goods and services between different states at the rate of 18%, which amounts to ₹ 25,000. The tax revenue of ₹ 4,500 is retained by the Central Government, while ₹ 4,500 is retained by the State Government.
Therefore, the total tax revenue collected by both the Central and State Governments is ₹ 29,500. Out of this, ₹ 7,000 is the share of the Central Government, and ₹ 22,500 is the share of the State Government.
Note: GST rules subject to change as per laws.
