What is Dual GST Model in India?

What is the Dual GST Model in India?

Dual GST divides tax powers between the Central and State Governments, ensuring a unified tax structure.

Written by : Knowledge Centre Team

2026-01-07

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5 minutes read

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The Goods and Services Tax (GST) marked one of the most significant tax reforms in India’s economic history, introduced to simplify the indirect tax system and create a common national market. To reflect India’s federal structure, the country adopted a Dual GST Model, where both the Centre and the States share the power to levy and collect GST. This system ensures that tax revenues are fairly distributed, avoids overlapping taxes, and brings greater transparency to the way businesses and consumers are taxed.

In this blog, we’ll understand the Dual GST Model's meaning, how the Dual GST Model works, why it was chosen for India, and the benefits it brings to businesses, governments, and taxpayers alike.

 

Key Takeaways

  • Centre and State governments co-share GST responsibilities, reflecting India's federalism

  • CGST and SGST are separately credited, and no cross-utilisation ensures tax accounting transparency

  • Simplified filing, PAN-linked GSTIN, and faster refunds ease business, aiding MSMEs and startups with better cash flow and lower costs

  • The model abolishes tax-on-tax, cutting suppliers' and consumers' costs

  • The GST Council serves as a central body that settles Centre-State disputes efficiently

What is the Dual GST Model in India?

The dual GST model or structure is a simple taxation system with two different taxation components. From 22nd September 2025, the GST structure has been further simplified into a two-slab system of 5% and 18% rates, replacing the earlier multiple slabs (12%, 28%, etc.). This rationalisation ensures greater transparency, reduced complexity, and wider taxpayer inclusion.

Central Goods and Service Tax (CGST) and the State Goods and Service Tax (SGST) are the tax components that can be levied on a single transaction in India within a state on account of its federal nature.

Moreover, both governments have been assigned distinct responsibilities, as prescribed under the division of powers statute of the Constitution. Overall, a dual GST structure is designed to align with the Constitutional requirements of fiscal federalism.

Features of the Dual GST Model:

  • The GST or Goods and Services Tax has two components - one levied by the central government (referred to as Central GST or CGST), and the other collected by the State governments (referred to as State GST or SGST)
  • Both CGST and SGST apply to all transactions pertaining to goods and services
  • Both CGST and SGST are paid to the respective accounts of the Central and the State Governments individually
  • CSGT and SGST are treated individually, implying that the taxes paid against the CGST are allowed to be considered as Input Tax Credit (or ITC)
  • Cross-utilisation of the Input Tax Credit between CGST and SGST is not permitted, except for the inter-state supply of goods and services
  • Credit accumulation based on the GST refund is to be avoided by both the Central and State governments except in the case of exports, input tax at a higher rate than output tax, and purchase of capital goods, among others

Under the latest reforms, several key items now attract nil GST or are fully exempt from tax. For example, 33 life-saving drugs and diagnostic kits, educational materials such as geometry boxes and exercise books, and individual life and health insurance premiums now carry a 0% GST rate. This move lowers the cost of essential goods and services, directly benefiting consumers.

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Benefits of Dual GST:

The Dual GST structure is a transparent and straightforward tax model with a pre-defined set of CGST and SGST rates. The benefits of having a dual GST structure include:

  • Reduction in the total number of taxes levied by the Central and State governments

  • A decrease in the effective tax rate for different goods

  • Elimination of the existing cascading effect of taxes

  • Reduction of the taxpayer’s transaction costs through simplified tax compliance

  • Increased tax collections based on a broader tax base and improved compliance

  • There is a uniform procedure for the collection of both CGST and SGST, as prescribed in their respective legislation

  • The composition or compounding scheme for GST has an upper ceiling and a floor tax rate concerning the gross annual turnover

  • As a taxpayer, you must submit periodic returns, in a standard format, to both the CGST and SGST authorities

  • Each taxpayer is allotted a 14-15-digit PAN-linked taxpayer identification number

  • The simplified rate structure and digital-first filing system encourage more businesses to comply, expand the tax base, and improve government revenue in the long run

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Did You Know?

India’s GST mop-up for March 2025 surged to ₹1.96 lakh crore, the second-highest ever, signalling growing compliance and economic resilience.
 

Source: Economic Times

 

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Impact and Implications of the Dual GST Model

The dual GST model has been a replacement for the overly complicated tax structure that existed before. So, the biggest beneficiaries of the new system have been the merchants and businesses who had to track, record, collect and file multitudes of taxes every month.

Another area of improvement, which was also a goal of the new GST Model, was the rate of final goods and services to the consumer. The Dual GST model aims to eliminate the cascading effect of indirect taxation on the final goods and services. Thus, if the benefits of lower taxes pass on to the consumers, they should experience lower prices.

Since dual GST means both the State and Central Governments can impose and collect taxes, there is a possibility of dispute. The GST Council is expected to draw the guidelines for resolving such disputes.

Conclusion

The Dual GST Model has redefined India’s taxation landscape by streamlining compliance, enhancing transparency, and supporting long-term economic growth. By balancing the powers of the Centre and the States, it reflects the true spirit of fiscal federalism while ensuring a unified tax structure across the country.

For taxpayers and businesses, the model translates into simpler processes, reduced cascading of taxes, and greater ease of doing business. At Canara HSBC Life Insurance, we support this transition through tax-aligned solutions that help individuals and enterprises seamlessly integrate GST compliance into their overall financial planning.

In the end, the Dual GST Model is designed to serve its core purpose, making taxation easier, fairer, and more efficient for both businesses and consumers.

Glossary

  1. CGST: Central tax on goods/services supplied within a state, shared with the Centre under the GST system.
  2. SGST: State tax on intra-state supplies of goods/services, collected by the respective state government.
  3. IGST: Tax on inter-state supply of goods/services, collected by the Centre and shared between the Centre and States.
  4. ITC: Input Tax Credit allows businesses to reduce tax payable by claiming credit on taxes paid for purchases.
  5. GST Council: Authority that governs GST laws and rates.
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FAQ on Dual GST

Income tax in India is based on incremental slab rates. The tax rate is higher for higher incomes. You can also avail deductions from your taxable income if you invest in eligible instruments like PPF, NPS, ELSS, ULIPs, etc. Starting AY 2024-25 you have two tax regimes – old and new. The old tax regime includes all deductions from the gross total income, while the new tax regime offers a lower tax rate. So, if you are not investing in tax-saving instruments you can file your tax returns as per the new tax regime.

Usually, a receipt is a convenient document to produce while claiming your deductions for expenses. However, the following alternatives are available if you lose the receipt:

  • Avail fuel or petrol expenses with the number of kilometres.
  • Credit card statement for computer items
    Credit/debit card statement for stationery items
  • Membership documents to show running membership to claim the fees amount

India follows a federal structure where both the Centre and States have taxation powers. The Dual GST Model allows both governments to levy and collect GST simultaneously, ensuring fiscal autonomy and cooperative federalism.

Under Dual GST, every taxable transaction attracts Central GST (CGST) levied by the Centre and State GST (SGST) levied by the State. For inter-state transactions, Integrated GST (IGST) is charged and later apportioned between the Centre and the States.

In a single GST system, only one authority levies and collects tax. In contrast, Dual GST allows both the Centre and the States to tax the same transaction, reflecting India’s federal structure.

Key features include concurrent taxation, separate CGST and SGST laws, an input tax credit mechanism, and IGST for inter-state trade. It ensures transparency, uniformity, and balanced revenue sharing between the Centre and the States.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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