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.

What is CGST?

CGST full form is Central Goods and Services Tax. It refers to the tax levied by the Central Government on intra-state supplies of goods and services. In simple terms, when a product or service is sold within the same state, CGST is charged along with SGST (State Goods and Services Tax). While SGST is collected by the respective state government, CGST ensures that the Centre receives its share of revenue.

CGST Meaning and Legal Basis

The meaning of CGST lies in its role as a part of India’s Goods and Services Tax (GST) system. It came into effect through the CGST Act, 2017, which consolidated multiple indirect taxes earlier levied by the Centre, such as:

• Service Tax
• Central Excise Duty
• Additional Customs Duty

By replacing these taxes, CGST created a unified taxation structure and simplified compliance for businesses.

Role of CGST in India’s GST System

Under India’s dual GST model, both the Central and State Governments levy taxes on a single transaction of goods and services:

• CGST: Goes to the Central Government
• SGST: Goes to the State Government

This system ensures fair revenue distribution and avoids double taxation, making the indirect tax system more transparent and efficient.

Key Highlights of CGST

• Full Form: Central Goods and Services Tax
• Applicable On: Intra-state supply of goods and services
• Collected By: Central Government
• Legal Basis: Governed under the CGST Act, 2017
• Purpose: Replaces multiple central indirect taxes and simplifies the tax system

Also Read: Home Loan Tax Benefits for Women

When is CGST Applicable?

CGST tax is applicable whenever there is an intra-state supply of goods or services in India. In simple terms, if a transaction takes place within the same state or union territory, the Central Government levies CGST, while the respective State Government charges SGST (or UTGST in case of Union Territories).

Practical Examples of CGST Applicability

• Sale within Maharashtra: If a business in Mumbai sells goods worth ₹1,00,000 to a customer in Pune, both CGST and SGST are applied. For instance, if the total GST rate is 18%, then 9% will be charged as CGST and 9% as SGST.
• Sale within Karnataka: A Bengaluru-based service provider offering consultancy to a client in Mysuru will charge GST split equally as CGST and SGST.
• Union Territory Example: If a shop in Chandigarh sells electronics within the Union Territory, the GST is split between CGST and UTGST.

Key Points to Remember about CGST Applicability

• Applicable only on intra-state transactions (seller and buyer located in the same state/UT).
• CGST is always paired with SGST or UTGST on the same supply.
• Not applicable on inter-state supplies, where IGST (Integrated Goods and Services Tax) is levied instead.

CGST percentage is usually half of the applicable GST rate. For example, if GST is 12%, then 6% is CGST and 6% is SGST.

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 share of revenue from intra-state transactions. Before GST was introduced, taxes such as excise duty and service tax were collected separately, creating complexity and duplication. With the implementation of the CGST Act, 2017, the system became more unified, ensuring that both the Centre and the States share revenue transparently without creating tax barriers. The revenue collected under CGST is credited directly to the Central Government’s account and supports national development through infrastructure projects, welfare schemes, subsidies, and administrative expenses.

Key Roles of CGST

• Collection by the Central Government – Enables the Centre to directly collect its portion of tax from intra-state supplies.
• Dual GST Structure – Works alongside SGST/UTGST to ensure seamless taxation of intra-state transactions.
• Equal Division of Tax Burden – Splits the GST rate between CGST and SGST/UTGST, ensuring fair contribution by both governments.
• Revenue Allocation – Funds collected through CGST go toward national programs, subsidies, and fiscal responsibilities.
• Ensuring Fiscal Balance and Cooperative Federalism – Promotes balanced revenue distribution between the Centre and States, strengthening cooperative federalism.
• Replacement of Multiple Taxes – Substitutes older central taxes like excise duty, service tax, and additional customs duty, simplifying compliance.

Also Read: Advantages of GST for Small Businesses

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 Percentage and Slab Rates

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

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

What is the CGST Formula and How to Calculate It?

To calculate CGST tax, businesses need to apply the CGST percentage on the taxable value of goods or services. The formula is:

CGST Formula:

CGST= (CGST Rate100) ×Taxable Value\text {CGST} = \left (\dfrac{\text {CGST Rate}}{100} \right) \times \text {Taxable Value} CGST= (100CGST Rate)×Taxable Value

Examples of CGST Calculation

1. Retail Sale within Maharashtra

• Taxable Value: ₹1,00,000
• GST Rate: 18% (split equally into 9% CGST + 9% SGST)
• CGST = (9/100) × 1,00,000 = ₹9,000
• Total GST = ₹18,000 (₹9,000 CGST + ₹9,000 SGST)

2. Service within Karnataka

• Taxable Value: ₹50,000
• GST Rate: 12% (6% CGST + 6% SGST)
• CGST = (6/100) × 50,000 = ₹3,000
• Total GST = ₹6,000 (₹3,000 CGST + ₹3,000 SGST)

3. Small Business Transaction in Delhi

• Taxable Value: ₹10,000
• GST Rate: 5% (2.5% CGST + 2.5% SGST)
• CGST = (2.5/100) × 10,000 = ₹250
• Total GST = ₹500 (₹250 CGST + ₹250 SGST)

Key Points on CGST Calculation

• The CGST percentage is always half of the applicable GST rate.
• CGST is levied only on intra-state supplies (within the same state/UT).
• For inter-state supplies, IGST is charged instead of CGST + SGST/UTGST.
• Knowing how to calculate CGST helps businesses determine the correct tax liability and avoid penalties.

Why Does India Have CGST, SGST, and IGST?

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.

Benefits of CGST for Businesses and the Economy

The introduction of CGST tax has brought significant improvements to India’s indirect tax system. By merging multiple central taxes into a single levy, it has reduced complexity and improved transparency. Both businesses and the overall economy benefit from a simplified, uniform, and efficient taxation process.

Key Benefits of CGST

• Simplified Tax Compliance – Businesses now need to comply with a single set of rules for central taxes, reducing paperwork and administrative burden.
• Elimination of Cascading Taxes – Earlier, taxes were levied on taxes, increasing costs. CGST tax benefits include removing this “tax-on-tax” effect.
• Input Tax Credit (ITC) – Businesses can claim credit on the CGST paid for inputs, lowering the overall tax liability.
• Uniform Tax Rates – A consistent tax structure across states helps businesses plan better and reduces price variations.
• Streamlined Administration – Having one central law for intra-state transactions makes enforcement and compliance smoother.
• Reduction in Tax Evasion – A structured, digital tax system increases accountability and minimizes leakages.
• Improved Transparency – With uniform rates and online compliance, businesses and consumers benefit from clarity and fairness in taxation.

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.

Q.5. Can CGST liability be set off against IGST input credit?

A. Yes. Businesses can use IGST input credit to set off against their CGST liability. However, the reverse is not allowed (CGST credit cannot be directly used against IGST liability).

Q.6. How is CGST calculated for composite supply or mixed supply?

A. For a composite supply, the CGST is calculated based on the tax rate applicable to the principal supply. In the case of a mixed supply, the highest applicable GST rate among the items is used for calculating CGST and SGST/UTGST.

Q.7. Are exempted goods/services subject to CGST?

A. No. Goods and services that are classified as exempt under GST are not subject to CGST tax. Businesses dealing only in exempt supplies do not need to charge CGST.

Q.8. How does CGST apply to small businesses under the GST composition scheme?

A. Small businesses with turnover up to the prescribed limit can opt for the GST composition scheme. In this case, they pay tax at a lower fixed rate, but they cannot charge CGST separately on invoices or claim input tax credit.

Q.9. What is the process of CGST registration for new businesses?

A. New businesses must apply for GST registration on the official GST portal. Once registered, they receive a GSTIN (Goods and Services Tax Identification Number) and are required to collect and pay CGST, SGST/UTGST, or IGST depending on the nature of their transactions.

Q.10. How is CGST paid and filed online through the GST portal?

A. Businesses must log in to the GST portal, generate a challan, and pay CGST through net banking, debit/credit card, or NEFT/RTGS. Filing is done via monthly or quarterly GST returns (GSTR-3B and GSTR-1), where CGST liability is reported.

Q.11. Is CGST applicable on imports of goods or services?

A. No. Imports are considered inter-state supplies under GST, and hence IGST is levied instead of CGST and SGST.

Q.12. Can CGST be revised if there is an error in filing returns?

A. Yes. If there is an error in CGST reporting, corrections can be made in subsequent GST returns. However, businesses must ensure timely rectification to avoid penalties or interest.

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