The Goods and Services Tax system in India works through three main components, CGST, SGST, and IGST. Each tax applies in different situations depending on whether the supply takes place within a state or across state borders. Understanding their use helps businesses stay compliant and manage input tax credit effectively.

What Is CGST

The Central Government collects CGST on supplies that occur within the same state. This tax applies along with SGST whenever goods or services move inside one state. The entire share of CGST revenue goes to the Central Government.

What Is SGST

The State Government collects SGST on the same intra-state transactions where CGST applies. The revenue from SGST remains with the state where the supply happens. Together, CGST and SGST ensure that both the Centre and the State share revenue from sales within one state.

What Is IGST

The Central Government collects IGST on inter-state transactions and on imports and exports. Later, it distributes the revenue between the Centre and the destination state. IGST creates a seamless national market by ensuring that tax applies only once when goods or services move across state borders.

What Are Input Tax Credit Rules

The GST framework allows businesses to use input tax credit to reduce tax liability. CGST credit can pay CGST or IGST. SGST credit can pay SGST or IGST. IGST credit offers the widest flexibility and can be used against IGST, CGST, or SGST.

Example

When a seller in Maharashtra supplies goods to a buyer in Mumbai, both CGST and SGST apply because the supply remains within the state. When the same seller supplies goods to a buyer in Delhi, IGST applies because the supply crosses state borders. Imports into India also attract IGST, and the revenue is shared with the destination state.
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Conclusion

CGST and SGST apply together on intra-state supplies, while IGST applies to inter-state trade and imports. This system balances revenue between the Centre and the States while keeping taxation uniform under the principle of “One Nation, One Tax.”