What is Dual GST (Goods and Services Tax) in India?
The Dual GST structure in India is essentially a simple tax with different taxation rates – the Central Goods and Service Tax (or CGST) and the State Goods and Service Tax (or SGST). As the name suggests, the dual GST structure implies that both the Central and State governments can levy and collect taxes via appropriate legislation.
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 Structure
- The GST or Goods and Service 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 States 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 utilization 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
- There is a uniform procedure for 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
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