Tax
by 5paisa Research Team Last Updated: 2023-11-21T17:12:52+05:30
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State Goods and Service Tax is an integral part of GST. Earlier, the taxation system in India consisted of various taxes, such as Central Excise, Service Tax, and State VAT, among others. However, with the implementation of GST, a single tax system has been introduced, which comprises SGST, CGST, and IGST.
In the intra-state transactions, i.e., when services or goods supplied within the state, SGST and CGST are collected. On the other hand, for inter-state transactions, i.e., when services or goods are provided between the states, only IGST will be collected.

To determine the applicability of taxes, it is essential to use the correct GSTIN, which can be validated with the help of the GST search tool before using it on the sales invoice.

It is worth noting that GST is referred to as the destination-based tax, which means that it is received by a state where services or goods are utilised and not the place where they are manufactured by the state. Read on to know what is SGST.
 

What is SGST – State Goods and Service Tax?

State Goods and Service Tax, or SGST, is a component of the Goods and Service Tax system in India, alongside CGST and IGST. It aims to create a unified tax system for the entire country. The State Goods and Service Tax Act 2016 governs SGST.

As per SGST meaning, SGST does not apply to alcohol intended for human consumption. This tax is applied to the transaction value of goods or services supplied, as per the SGST Act’s Section 15. Moreover, its transaction value refers to the price payable or paid for the supplied services or goods.

As the name suggests, the state where the goods or services are consumed receives the tax revenue from SGST, not the state where they were produced. The State Goods and Services Tax of 2017 regulates the levying and collection of this tax.
 

Why GST?

Goods and Services Tax is referred to as GST. It is a tax reform that intends to simplify the taxation system by removing many indirect taxes and replacing them with one all-encompassing tax. India is one of the numerous nations that have introduced GST.

The GST is crucial for several reasons:

1.    Simplification: GST replaces several indirect taxes with the single tax, such as VAT, excise duty, service tax, and more. This streamlines the tax system and makes it simpler for companies to abide by the tax regulations.

2.    Transparency: The GST's open tax structure decreases the likelihood of tax evasion. It ensures that each transaction is documented and that the tax owed is properly accounted for.

3.    Boost to the economy: By lowering the cost of products and services, GST is anticipated to strengthen the economy. It stops taxes from cascading and ensures that companies may claim input tax credits for the taxes they paid on purchases.

4.    Uniformity: GST guarantees consistency in the nation's taxes regime. Businesses are no longer required to abide by various state tax regulations.

GST is a significant tax reform that streamlines the tax code, encourages openness, and stimulates the economy.
 

Features of SGST

●    SGST is imposed and collected by states on services and goods supplied for a fee. The revenue collected through SGST is credited to the respective state government’s accounts.
●    While each state owns an SGST act, the fundamental aspects of the GST law, such as unpredictability, taxable event, valuation, measure, and classification, remain consistent across all states.
●    However, SGST does not apply to exempted services and goods which are outside the domain of GST. Also, SGST is not levied when the cumulative annual turnover exceeds the prescribed threshold.
 

What are State Goods and Services Tax (SGST) with Example

The State Government levies SGST on the supply of goods and services within a state under the GST regime, and SGST Act would govern the tax.

Here is an SGST example: To illustrate, consider the scenario where Mohit, a dealer in Gurgaon, sells goods whose worth is Rs. 20,000 to Dinesh in Maharashtra. The GST rate applicable is 18%, which includes a 9% CGST rate and a 9% SGST rate. In this case, dealer will collect Rs. 3600 as tax, where Rs. 1800 will be remitted to the Central Government. Then, Rs. 1800 will be deposited to the Maharashtra’s Government.
 

Where SGST is Applicable?

State Goods and Services Tax, or SGST as it is known in India, is a part of the Goods and Services Tax (GST). Intra-state supplies of goods and services, or when the supply is made inside the same state, are subject to the SGST.

A company must collect SGST from the customer and deposit it with the state government when selling products or services within the same state. The specific state government determines the SGST rate, which is often the same as the CGST rate (national Goods and Services Tax), another component of GST that the national government imposes.

For instance, if a company in Maharashtra sells items to another company there, it will charge the purchaser SGST and CGST. The firm will deduct 9% of the transaction value for SGST and 9% for CGST if the rates for both taxes are 9%. The firm must deposit 9% SGST and 9% CGST, or 18%, with the appropriate state and federal governments.

It is significant to note that IGST (Integrated Goods and Services Tax) applies to interstate deliveries of goods and services, whilst State Goods and Service Tax only applies to intra-state supplies.
 

Benefits of SGST for Businesses

●    Elimination of Multiple Taxes: One of the advantages of SGST is the elimination of multiple indirect taxes. Under this system, various taxes like turnover, sales, service, and others will be subsumed under the overarching GST (Goods and Services Tax).

●    Saves Money: GST enables greater financial savings and lowers the cost of products and services.

●    Ease of Business: The GST unifies the tax system across the country, eliminating the need for separate tax systems for each state. This standardised tax system is uniform across all states, making it highly advantageous for interstate businesses.

●    Best in Filing Tax and Documentation: GST benefits companies and businesspeople. For company experts, compliance, tax filing, and paperwork tasks are simple.

●    Reduction of Cascading Effect: With GST, you will benefit from tax credits, and tax will only be applied to margin prices. As a result, it reduces the tax's cascading impact and lowers the cost of items.
 

How is SGST Charged?

Assume a Mumbai-based dealer sells a desktop computer to a Pune-based trader for $30,000. In such a case, the CGST (in Maharashtra) will be 14%, whereas the SGST will be 14%. As a result, the merchant is required to pay SGST and CGST totalling 4,200.

The dealer from Pune will charge the trader in Bihar about 28% of the IGST if the desktop is sold to the latter for 50,000. Because it is an interstate transaction, this is the case. On top of the cost of the PC, he adds 28% in IGST. This amounts to $8,400 on a payment of $30,000 made as IGST to the federal government.

In India, the GST regime has resulted in radical transformation. Being GST-compliant may significantly impact a firm and possibly accelerate its growth. Additionally, it might assist an entrepreneur in obtaining company finance. With financing accessible for both start-ups and MSMEs, flexibility and customisation are key.
 

SGST, CGST and IGST rates of some daily use items

Items

CGST

SGST

IGST

Computers and processed foods

6%

6%

12%

Daily usage of products such as coffee, tea, edible oil, spices, and sugar. Necessary drugs, charcoal, and Indian sweets are also included in this slab.

2.50%

2.50%

5%

Luxury products include posh and high-end cars, refrigerators, air conditioners, aerated drinks, cigarette packs, and luxurious motorcycles.

14%

14%

28%

Body soaps, toothpaste, hair oil, industrial intermediaries, and capital goods.

9%

9%

18%

How Frequently are SGST rates revised?

Since implementing the Goods and Services Tax (GST), the GST rates have been subject to multiple revisions. The most recent rate revision was implemented on 14 March 2020 during the 39th GST Council Meeting. Subsequent Council Meetings have also been held to discuss further rate revisions. To stay updated on all types of GST and rate revisions, you can visit the official website at Central Board of Indirect Taxes and Customs, Government of India. 

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