What is CGST (Central Goods and Services Tax) in India

India’s tax system changed forever on July 1, 2017, with the introduction of the Goods and Services Tax (GST). It aimed to replace the complex web of indirect taxes levied by both the Centre and the states. GST brought all major indirect taxes under one umbrella, making compliance easier and more transparent. One of the key components of this new system is CGST, which handles the central government’s share of tax collection on intra-state transactions.

In this blog, we’ll explain the CGST full form, how it works, and its role in the GST structure.

What is CGST?

Central Goods and Services Tax (CGST) is the tax levied by the Central Government on intra-state supplies of goods and services. When a product or service is sold within the same state, CGST is charged along with SGST (State Goods and Services Tax). While SGST goes to the state government, CGST ensures the Centre receives its share of revenue.

It replaced several earlier central taxes such as service tax, central excise duty, and additional customs duty. CGST is governed by the CGST Act and applies to domestic transactions within a state or union territory, allowing the central government to collect its portion of the tax directly.

Also Read: Home Loan Tax Benefits for Women

How is CGST Applied?

CGST is charged only when the supply of goods or services takes place within the same state, known as an intra-state supply. In such cases, the applicable GST rate is split equally between CGST and SGST.

Example:

If a product sold in Maharashtra carries 18% GST, it is divided as:

1. 9% CGST – collected by the Central Government
2. 9% SGST – collected by the Maharashtra State Government

So, the buyer pays 18%, but the revenue is shared between both governments.

Difference Between CGST, SGST, IGST, and UTGST

Each tax serves a different purpose depending on where and how the supply occurs. In intra-state transactions, CGST and SGST/UTGST apply. In inter-state or export-import cases, IGST is applicable.

Role of CGST in Revenue Distribution

CGST allows the central government to collect its portion of revenue from intra-state transactions. Before GST, taxes like excise duty and service tax were collected separately. Now, CGST ensures a unified system where both the Centre and the State share revenue without duplicating effort or creating tax barriers between them.

The revenue from CGST goes directly into the central government’s account and is used for national infrastructure, welfare schemes, subsidies, and administrative expenses. It forms a vital part of the Centre’s fiscal resources.

Also Read: Old Tax Regime vs. New Tax Regime

CGST Input Tax Credit

Input Tax Credit (ITC) is one of the major benefits under GST. Businesses can claim credit for the CGST paid on purchases made for business use. This reduces the overall tax burden and prevents double taxation.

For example, if a manufacturer in Gujarat buys raw materials worth INR 1,00,000 and pays INR 9,000 as CGST (at 9%), they can use this INR 9,000 as a credit to reduce their CGST liability when they sell finished goods within the state.

Note:

1. CGST credit can only be used against CGST or IGST liabilities.
2. It cannot be used to pay SGST.

Example of CGST Calculation

Let’s take a simple billing scenario.

M/s Rohan Traders, based in Karnataka, sells electronics worth INR 50,000 to a buyer in the same state.

Applicable GST Rate: 18%

1. CGST @ 9% = INR 4,500
2. SGST @ 9% = INR 4,500
3. Total GST = INR 9,000
4. Total Invoice = INR 59,000

Here, INR 4,500 will go to the Central Government as CGST, and INR 4,500 to the Karnataka Government as SGST.

CGST Tax Slabs

CGST follows the same rate slabs as GST. These include:

The GST Council, a federal body comprising central and state representatives, decides these rates.

Why Do We Need Three Types of GST?

India follows a federal structure. Both the central and state governments need the power to collect taxes. That’s why GST is structured into three parts:

1. CGST for the Centre’s share
2. SGST/UTGST for the State or Union Territory’s share
3. IGST for inter-state transactions

This system ensures fair distribution of tax revenue and compliance across different levels of government while simplifying tax reporting for businesses.

Conclusion

CGST is more than just a tax—it’s a key pillar of India’s reformed tax system. By ensuring that the central government receives its share from intra-state transactions, CGST supports national development and maintains fiscal balance. When paired with SGST, it forms a dual-tax mechanism that’s transparent, predictable, and business-friendly—encouraging smoother compliance and ease of doing business, especially for enterprises seeking growth through options like business loans. With CGST, India has moved one step closer to a unified market where goods and services move seamlessly, and taxes no longer hinder trade.

FAQs

Q.1. What is the CGST rate?

A. The CGST rate is typically half of the total GST rate. For example, if the GST is 18%, the CGST rate is 9%.

Q.2. When is CGST applicable?

A. CGST is applicable on intra-state supplies—when goods or services are sold within the same state.

Q.3. Who collects CGST in India?

A. The Central Government collects CGST on intra-state transactions.

Q.4. What is the CGST percentage?

A. The CGST percentage varies by product or service but commonly falls under slabs like 0.125%, 1.5%, 2.5%, 6%, 9%, or 14%, depending on the applicable GST rate.

Disclaimer:

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