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CGST, or Central Goods and Services Tax, is a component of the Goods and Services Tax (GST) system in India. It is a tax levied by the central government on the supply of goods and services within a state or union territory.
GST was introduced in India on July 1, 2017, to replace the complex system of multiple indirect taxes that were previously levied by the central and state governments. The GST system is a comprehensive indirect tax system that covers all stages of the supply chain, from production to consumption.
Under the GST regime, the tax system is divided into three components - Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), and Integrated Goods and Services Tax (IGST). CGST is levied by the central government, while SGST is levied by the state government, and IGST is levied on inter-state supplies.
The main objective of the CGST is to create a single tax system that is applicable throughout the country, eliminating multiple taxes that were previously levied by different states. It also aims to simplify the tax system and reduce the compliance burden on taxpayers.
The legal framework for the CGST is provided by the Central Goods and Services Tax Act, 2017. The Act lays down the rules and regulations for the levy, collection, and administration of CGST.
In this article, we will discuss the various aspects of the CGST, such as its applicability, rates, exemptions, and procedures.
Applicability of CGST
CGST is applicable to all transactions of goods and services that are carried out within a state or union territory. It is levied on the value of goods and services supplied by the taxpayer and is payable to the central government.
Every business that is registered under GST is required to pay CGST on the supply of goods and services. The tax liability under CGST is calculated based on the value of goods and services supplied by the taxpayer, and the applicable tax rate.
CGST Rates
The CGST rates are determined by the GST Council, which is a constitutional body consisting of the finance ministers of all states and union territories, chaired by the Union Finance Minister. The Council is responsible for deciding the tax rates, exemptions, and other policies related to GST.
The GST Council has classified goods and services under different tax slabs, ranging from 0% to 28%. The CGST rates are the same as the SGST rates, and the total tax rate on a transaction includes both CGST and SGST.
The current tax slabs under GST are as follows:
1. 0% tax rate: This applies to essential items such as food grains, milk, fruits and vegetables, and medical supplies.
2. 5% tax rate: This applies to goods and services such as clothes, footwear, and transportation services.
3. 12% tax rate: This applies to goods and services such as processed food, mobile phones, and financial services.
4. 18% tax rate: This applies to goods and services such as hotels, restaurants, air travel, and IT services.
5. 28% tax rate: This applies to goods and services such as luxury cars, tobacco, and aerated drinks.
The GST Council may revise the tax rates from time to time, based on the changing economic conditions and revenue requirements.
Exemptions under CGST
The CGST Act, 2017 provides for various exemptions from CGST for certain goods and services. These exemptions are aimed at providing relief to specific sectors or activities that are considered essential for the development of the economy. Some of the major exemptions are as follows:
1. Education and healthcare services: Services related to education and healthcare, such as school and college education, medical services, and hospital services are exempt from CGST. This exemption ensures that basic services in these sectors remain affordable and accessible to all.
2. Small businesses: Businesses with an annual turnover of up to Rs. 20 lakhs are exempt from CGST. In the case of businesses operating in special category states, the turnover threshold is Rs. 10 lakhs. This exemption is aimed at providing relief to small businesses that may find it difficult to comply with the complex GST regulations.
3. Agricultural produce: The supply of agricultural produce such as cereals, pulses, fruits, vegetables, and milk is exempt from CGST. This exemption ensures that agricultural activities are not burdened with additional taxes and farmers are able to get a fair price for their produce.
4. Export of goods and services: The export of goods and services is exempt from CGST. This exemption ensures that Indian goods and services remain competitive in the global market.
5. Financial services: Services provided by banks, non-banking financial companies (NBFCs), and other financial institutions are exempt from CGST. This exemption ensures that the financial sector is not burdened with additional taxes, which could affect the growth of the sector.
6. Religious and charitable activities: Services provided by religious and charitable institutions are exempt from CGST. This exemption ensures that these institutions can continue to provide essential services to society without being burdened with additional taxes.
7. Special economic zones (SEZs): Supplies made to SEZs are exempt from CGST. This exemption ensures that SEZs remain attractive to investors and continue to contribute to the development of the economy.
8. Petroleum products: Petroleum products such as petrol, diesel, and natural gas are currently exempt from GST. These products continue to be subject to the earlier system of taxes such as excise duty and value-added tax (VAT).
It is important to note that some goods and services that are exempt from CGST may still be subject to other taxes such as customs duty, excise duty, or state-level VAT. Therefore, it is important for businesses to carefully evaluate the tax implications of their activities and seek professional advice if required.
