What is GST? CGST, SGST and IGST Explained with Examples (2026)

GST — the Goods and Services Tax — is India’s single, destination-based tax on the supply of goods and services, in force since 1 July 2017. It replaced a patchwork of central and state levies with one tax that splits into three parts: CGST, SGST and IGST. This guide explains each component, how tax flows between seller and buyer, and how rates changed under GST 2.0.

What GST Replaced and Why the Design Matters

GST was introduced through the 101st Constitution Amendment Act and rolled out on 1 July 2017. It subsumed the major central and state taxes of the old regime: central excise duty, service tax, state VAT, central sales tax (CST), entry tax and octroi, purchase tax and luxury tax, among others.

The core design idea is that GST is a destination-based consumption tax: the revenue belongs to the state where the goods or services are finally consumed, not where they are manufactured. Because credit flows at every stage against the tax charged at the previous stage, only the value added actually gets taxed. This removes the cascading tax-on-tax effect that inflated prices under the old system.

The Components: CGST, SGST, UTGST and IGST

Every supply attracts GST in one of two ways, depending on the locations of supplier and place of supply. The head changes, but the total burden does not.

• Intra-state supply — seller and buyer are in the same state. Tax is charged as CGST (Central GST, collected by the Centre) plus SGST (State GST, collected by the state), usually split equally at the same rate.
• Inter-state supply — seller and buyer are in different states or union territories. Tax is charged as IGST (Integrated GST), collected by the Centre, which then settles the consuming state’s share.
• Imports of goods and services are treated as inter-state supplies and attract IGST.
• UTGST applies in union territories without a legislature — such as the Andaman and Nicobar Islands, Lakshadweep, Chandigarh and Ladakh — in place of SGST. Delhi, Puducherry and Jammu and Kashmir, which have legislatures, levy SGST.

Worked Example: A ₹1,000 Sale at 18%

Consider an invoice for goods worth ₹1,000 taxed at 18%. If the seller and buyer are both in Maharashtra, the bill shows CGST at 9% (₹90) and SGST at 9% (₹90). If the buyer is in Karnataka, the same bill shows a single line of IGST at 18% (₹180). The buyer pays ₹1,180 in either case — only the split between governments changes.

Before you quote a price, confirm the rate. Our GST calculator shows the CGST, SGST and IGST splits for any value.

Input Tax Credit: The Chain That Keeps GST Neutral

Input tax credit (ITC) lets a registered business reduce its output tax by the GST already paid on its purchases. A manufacturer who pays ₹180 as IGST on raw material and charges ₹360 as output tax on the finished product deposits only the net ₹180. The credit chain continues through wholesaler and retailer, so tax finally falls only on the end consumer.

Credit in the electronic credit ledger must be used in a fixed order. IGST credit is used first — towards IGST, and then towards CGST or SGST in any order and proportion. CGST credit can be used only for CGST and then for IGST, while SGST credit works only for SGST and then for IGST. You can never set CGST credit against SGST or the other way round.

Reading a GSTIN

Every registration carries a 15-character GSTIN. The first two digits are the state code, the next ten characters are the entity’s PAN, the 13th character distinguishes between multiple registrations of the same entity in one state, the 14th is usually the letter Z, and the final character is a checksum digit. Because the state code is embedded, you can see at a glance whether a supplier is registered in your state. Verify any counterparty in seconds with our GST number verification tool.

The GST Council: Who Decides

Policy is set by the GST Council, a constitutional body chaired by the Union Finance Minister, with the finance ministers of the states as members. The Council recommends rates, thresholds, exemptions and special rates, the Centre holds one-third of the voting weight and the states two-thirds, with decisions needing a three-fourths majority. Crucially, Council recommendations become law only when notified under the CGST, SGST and IGST Acts — until then, the existing rates and rules continue.

How Rates Have Evolved: 2017 to GST 2.0

At launch in 2017, GST had four main slabs — 0%, 5%, 12% and 28% — plus a compensation cess stacked on luxuries and sin goods. From 22 September 2025, the GST 2.0 rationalisation collapsed the structure into two main slabs, 5% and 18%, with a steep 40% rate for demerit goods such as pan masala, tobacco, aerated sugary drinks, luxury cars, yachts and private aircraft.

Key Takeaways

• GST, effective 1 July 2017, is a destination-based tax that replaced excise, service tax, VAT, CST, entry tax and similar levies.
• Same-state supplies split the tax into CGST + SGST; inter-state supplies and imports attract IGST; UTGST replaces SGST in UTs without legislatures.
• ITC is used in the order IGST first, then CGST, then SGST — CGST and SGST credits cannot cross-settle.
• The GST Council recommends rates, but they bind taxpayers only after notification under the GST laws.
• Since 22 September 2025 the slabs are 5% and 18%, with 40% for demerit goods.

Frequently Asked Questions

Who collects IGST?

The Centre collects IGST on inter-state supplies and imports, and apportions the consuming state’s share through the settlement mechanism. The destination state ultimately receives its share of the revenue.

Is IGST costlier than CGST plus SGST?

No. The IGST rate equals the combined CGST plus SGST rate, so a ₹1,000 sale at 18% costs ₹180 either way. Only the collection route differs.

What is UTGST and who pays it?

UTGST replaces SGST in union territories without legislatures, such as Lakshadweep or Chandigarh. Taxpayers there charge CGST plus UTGST on same-territory supplies, exactly mirroring the CGST-SGST split in states.

Can I use CGST credit to pay SGST?

No. CGST credit can only pay CGST or IGST, and SGST credit can only pay SGST or IGST. IGST credit is the most flexible and must be exhausted first in the utilisation order.

What do the first two digits of a GSTIN mean?

They are the state code of the registration — for example, 27 indicates Maharashtra and 07 indicates Delhi. The next ten characters are the taxpayer’s PAN.

Disclaimer: Tax laws change frequently. Verify current rates and deadlines on the official portals (incometax.gov.in, gst.gov.in) or consult a qualified professional before acting.