CGST, SGST and IGST: which tax applies and why

The first thing any GST question checks is whether you can tell which tax applies to a supply. Get this wrong and the invoice, the return and the credit claim are all wrong. The rule is simple once you see it as a comparison of two places.

The two places that matter

Compare the location of the supplier with the place of supply. For goods that are moved, the place of supply is generally where the movement ends, that is, where the buyer receives them.

• Same state: intra-state supply. Charge CGST plus SGST (or UTGST in a union territory without its own legislature).
• Different states: inter-state supply. Charge IGST.

The buyer's bank, the currency and the size of the business do not change this.

Splitting the tax

For an intra-state supply, the rate is divided equally between CGST and SGST. Assume a rate of 18% on a taxable value of 50,000:

CGST 9%  = 4,500
SGST 9%  = 4,500
Total    = 9,000

The same sale inter-state would show IGST 18% = 9,000. The total is the same; only the type changes. A common mistake is charging 18% CGST and 18% SGST, which doubles the tax.

Working back from a price that includes GST

If a price already includes tax, divide by 1 plus the rate. With an assumed 18% rate, 2,360 divided by 1.18 gives a taxable value of 2,000 and tax of 360. Do not take 18% off the inclusive price; that gives the wrong base.

Reading a GSTIN

A GSTIN has 15 characters:

1. Characters 1 and 2: state code.
2. Characters 3 to 12: the PAN of the business.
3. Character 13: the registration number for that PAN in the state.
4. Character 14: usually Z by default.
5. Character 15: check character.

The state code lets you spot a likely inter-state supply at a glance, though place of supply still decides it.

Habit to keep

For every invoice, write down supplier state and place of supply before choosing the tax. Rates change through notifications, so always confirm the current rate from official sources rather than memory.