India’s GST Model divides taxes by the nature of the transaction as well as the country of the buyer and the seller. Understanding the types of GST in India—interstate and intrastate transactions—shows how the system promotes fairness and efficiency. GST ensures that tax revenues are shared fairly between the central and state governments, making the tax process simpler, more transparent, and more consistent.
The key types of GST tax are:
1. Inter-State Transactions
Inter- State transaction means supply of goods or services where any supply has taken place between two or more states or parts of states. In this case, the GST is shared between the central government and the state that uses or consumes the goods or services. This is to establish fairness on the taxation of these cross-boundary sales in that the central and state governments are able to be well captured.
For example, if an organization located in Maharashtra provided certain goods to a consumer through Gujarat, then that is Interstate Business. As a result, the tax collected is known as the Integrated Goods and Service Tax (IGST), shared in the central and state levels.
2. Intra-State Transactions
An intra-state transaction is completed when the supplied goods or services are confined within the state boundary. In this case, GST is levied in two parts: Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST).
The Central CGST on goods and services is being collected by the Central Government, whereas the Statewise SGST is gathered by the respective State Government. This division makes sure that any tax generated from these transactions within a state is shared by the central and state governments.
For example, if a seller from Delhi sold goods to a customer in the same state, then the GST amount is split between central GST and state GST. For the case of GST, the rate of tax is taken to be 18%.
Key Insight
Inter-State Transactions: GST is subdivided between the Central Government and the state that belongs to the particular consuming the goods or service on.
Intra-State Transactions: As we know, GST is divided into two components, one is for the central government, which is called CGST, and the other is for the state government, called SGST.
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