The Indian Goods and Services Tax had major burdens to replace numerous taxation policies in usage across the country. Therefore, it was designed to be complex in nature. This further resulted in a series of changes across India upon its implementation in 2017.
In order to cover the diverse range of taxation policies, three types of GST were designed for central, state, and interstate. Each one of these categories had distinct tax rates. Thus, if you are unaware of the State tax rate, read this article till the end. But let’s first understand what the state tax rate in GST means.
State Tax Rate in GST: An Overview
State Goods and Service Tax (SGST) is a crucial component of the GST framework in India. It represents one of the three categories alongside Central Goods and Service Tax and Integrated Goods and Service Tax. Enacted under the State Goods and Service Tax Act of 2017, SGST embodies the principle of “one tax, one nation.”
It streamlines the taxation system by subsuming various state levies, such as State Sales Tax, VAT, Luxury Tax, and others, into a unified State GST. This consolidation eliminates the complexities associated with multiple state taxes and contributes to the seamless flow of goods and services across the nation.
The SGST rate is determined by individual states and is applied in conjunction with the CGST rate to arrive at the overall GST rate. For instance, in a hypothetical transaction where a dealer in Gurgaon sells goods to a buyer in Bangalore worth ₹20,000 at an 18% GST rate (comprising 9% CGST and 9% SGST), the collected GST amount of ₹3600 is bifurcated, with ₹1800 remitted to the Central Government and an equivalent sum deposited with the Haryana Government.
This revenue generated through SGST directly contributes to the financial resources of the respective state government, thereby empowering states with fiscal autonomy and financial sustainability.
Also Read: State Goods And Service Tax (SGST)
Evolution of State Tax Rates Under GST
GST, introduced in India in July 2017, marked a significant transformation in the country’s indirect tax system. It subsumed a multitude of state and central taxes into a single, unified framework.
While the basic structure of four tax slabs (0%, 5%, 12%, 18%, and 28%) remains, state tax rates within the GST regime have undergone several changes and continue to evolve. Here’s a detailed breakdown:
1. Pre-GST Scenario
Before GST, states had independent tax systems with varying rates for value-added tax (VAT), central sales tax (CST), and other levies. This led to cascading taxes, administrative complexities, and inter-state trade barriers.
2. Initial GST Structure (July 2017)
- Five tax slabs: 0%, 12%, 5%, 18%, and 28%.
- The state GST (SGST) rate is capped at 14.5%.
- The combined CGST-SGST rate should not exceed 20% for most goods and services.
- Some exceptions with higher tax rates (luxury goods, sin taxes).
3. Key Changes and Ongoing Evolution
- 2017-2019: Frequent rate tweaks by the GST Council to address implementation challenges and revenue considerations.
- 2019-2021: Relative stability in rates, with a focus on compliance and simplification.
- 2022-present: A renewed focus on rationalisation and correcting inverted tax structures (where input tax rate exceeds output tax rate).
4. Notable changes
- Increase in SGST rate for textiles from 5% to 12% (Jan 2022).
- Reduction in SGST rate for certain fertilizers (2023).
- Proposal for revision of tax rates on specific items and services (under discussion).
What are the Features of State Tax Rates Under GST
The State Goods and Service Tax (SGST) plays a pivotal role in the Goods and Services Tax (GST) framework in India, contributing to the revenue of individual states. Here are key features that define the state tax rates under GST:
1. Imposition and Collection by States
SGST is both imposed and collected by individual states on the supply of goods and services for a fee. This decentralised approach empowers states to manage and regulate their taxation policies independently.
2. Revenue Allocation to State Governments
The revenue generated through SGST is exclusively credited to the respective state government’s accounts. This ensures that the tax proceeds directly contribute to the financial resources of the state, enabling them to meet fiscal obligations and undertake developmental initiatives.
3. Consistency in GST Law Framework
While each state has its own SGST act, the fundamental aspects of the GST law, including unpredictability, taxable events, valuation, measure, and classification, remain consistent across all states. This uniformity promotes a standardised approach to taxation.
4. Exclusion of Exempted Services and Goods
SGST does not apply to services and goods that fall within the category of exemptions under the GST framework. This exclusion ensures that certain essential services and goods remain outside the purview of SGST, contributing to a more targeted and equitable taxation system.
5. Threshold Limit for SGST Applicability
When a business’s cumulative yearly turnover surpasses the stipulated threshold limit, SGST is not charged. This threshold is designed to exempt smaller businesses from the complexities of GST compliance, focusing the taxation efforts on larger economic entities.
6. Adherence to Central GST (CGST) Rates
The State-wise GST rates are determined by individual states but are applied in conjunction with the Central Goods and Service Tax (CGST) rates to arrive at the overall GST rate. This collaborative approach ensures a balanced tax structure with contributions to both the central and state governments.
7. Input Tax Credit Mechanism
Under SGST, businesses can avail of the Input Tax Credit (ITC) on taxes paid for inputs and input services. This mechanism reduces the cascading effect of taxes, promoting efficiency in the supply chain and facilitating a smoother flow of goods and services.
8. Uniformity in Compliance Procedures
While state-wise GST rates may vary across states, the compliance procedures, including return filing and invoicing, are standardised. This ensures ease of business operations and promotes a seamless interstate movement of goods and services.
How are State Tax Rates Determined?
State tax rates under the Goods and Services Tax (GST) system in India are determined through a collaborative process involving the GST Council and the Central and State governments.
The Council deliberates on various factors to arrive at recommended tax rates. These factors include:
- Economic considerations
- Revenue implications
- Sector-specific requirements
While the Council provides a framework, individual states retain flexibility in setting their SGST rates within specified ranges. This cooperative federalism approach ensures a balanced and adaptable taxation system that considers the diverse needs of different industries.
Where are State Tax Rates Applicable?
The applicability of State Goods and Service Tax (SGST)/Union Territory Goods and Service Tax (UTGST) and other components like Integrated Goods and Service Tax and Central Goods and Service Tax in the Goods and Services Tax system is contingent upon the nature of the transaction.
Transactions are broadly categorized into two types: Intra-State Supply and Inter-State Supply. The determination of which tax components apply depends on whether the supply occurs within a single state or involves movement across state borders.
What are the Implications of GST State Tax Rate on Businesses?
The State Goods and Service Tax rate under the GST framework in India has significant implications for businesses. Here are key aspects that businesses need to consider in light of the GST state tax rate:
1. Cost Structure and Pricing
The SGST rate directly impacts the cost structure of goods and services. Businesses must factor in the applicable SGST rate when determining their pricing strategies to ensure competitiveness in the market.
2. Supply Chain Efficiency
The SGST rate influences the overall supply chain efficiency. Businesses should optimise their supply chain processes to mitigate the impact of GST on business, ensuring smooth interstate transactions.
3. Input Tax Credit Optimisation
Businesses can benefit from the ITC mechanism under GST. Understanding and optimizing ITC opportunities based on the SGST rates can contribute to cost savings and improved financial management.
4. Market Expansion Strategies
The variation in SGST rates across states may influence businesses’ market expansion strategies. Companies may choose to focus on states with lower tax rates to enhance their competitiveness and market penetration.
5. Adaptability to Changing Rates
The dynamic nature of GST rates requires businesses to be adaptable. Continuous monitoring of State tax rate variations, participation in industry discussions, and agility in adjusting business strategies are essential to navigate the evolving taxation landscape.
6. Customer Behavior and Demand
State-wise GST rates can impact consumer behaviour and demand patterns. Businesses need to assess how changes in tax rates may influence customer purchasing decisions and tailor their strategies accordingly.
What is the Consumer Perspective of the Effects of State Tax Rate in GST?
The State tax rate variations have direct implications for consumers. Some of the key considerations from a consumer’s standpoint are:
1. Price Impact
State tax rates directly impact the final prices of goods and services. Consumers may experience fluctuations in the cost of essential items based on the varying State Goods and Service Tax (SGST) rates across states.
2. Geographical Price Variations
Consumers in different states may encounter varying prices for the same product due to state-specific tax rates. This geographical disparity can influence consumer choices and preferences.
State tax rate variations can affect the affordability of goods and services. Consumers assess their disposable income in the context of these rates.
4. Economic Disparities Among States
The differential state tax rates contribute to economic disparities among states. Consumers may experience disparities in access to affordable goods and services.
5. Consumer Awareness and Education
Consumer awareness about state tax rates is essential. Educated consumers can make informed decisions, considering both product quality and pricing variations.
What are the Latest Updates and notifications related to State Tax Rates?
The GST regime in India sees regular updates and clarifications regarding state tax rates. Here is a quick summary of the latest GST notification updates issued by the GST Council:
|December 22, 2023
|Clarification on applicability of GST rate on supply of certain specified goods and services, including specified agricultural produce, specified handicraft goods, and specified services related to transportation of passengers.
|December 15, 2023
|Amendment to the CGST (Rate) notification to revise the rate of tax on specified goods and services, including toys, certain textile and leather products, and specified agricultural machinery.
|December 8, 2023
|Extension of due date for filing of GSTR-1 and GSTR-3B returns for the month of November 2023, providing relief to taxpayers during the peak festive season.
You can find past GST notification updates and circulars related to state tax rates on the official GST website. Consider subscribing to email alerts or using government apps to receive timely updates on changes in GST regulations.
The Indian GST system has changed the country’s indirect tax structure. The integration of SGST, CGST, and IGST has streamlined taxation. Businesses now ensure GST compliance by adjusting to dual structures for intrastate transactions and a consolidated approach for interstate dealings.
Consumer perspectives are shaped by varying state tax rates. The flexibility in registration and the reverse charge mechanism add layers to the system’s complexity.
Frequently Asked Questions
Q1. How is GST Divided Into States?
GST comprises SGST, CGST, and IGST. SGST/UTGST is collected by states/union territories for intra-state supplies. For instance, if a good is produced and sold within Gujarat, the state imposes SGST.
Q2. Is GST Based on State Sales tax?
In a country with a unified GST platform, central taxes like sales tax, excise duty, and service tax are amalgamated with state-level taxes such as entertainment tax, entry tax, transfer tax, sin tax, and luxury tax. This integrated approach results in a single tax levied on almost all goods and services, often at a uniform rate across the nation.
Q3. What is the Tax Rate of CGST and SGST?
The GST rate is set at 18%, which is a composite of two components: a Central Goods and Service Tax (CGST) rate of 9% and a State Goods and Service Tax (SGST) rate of 9%.
Q4. Can we Have 2 GST in one State?
Businesses, as per GST law, can register multiple verticals under one GST number in the same state. The decision to opt for single or multiple GSTINs is at the discretion of the business owner.
Q5. Which State Gives the Most of GST?
Maharashtra is the highest GST-paying state, with an annual collection of ₹23598 crore in 2022.
Q6. Which State is GST-Free?
The Hilly and northeastern states, including Arunachal Pradesh, Jammu and Kashmir, Himachal Pradesh, Uttarakhand, Tripura, Nagaland, Sikkim, Meghalaya, Mizoram, Assam, and Manipur are GST-free.
Q7. Is GST the same for all states?
Intrastate transactions incur Central GST (CGST) imposed by the Central Government and State GST (SGST) by the respective state governments. The Central Government levies Integrated GST (IGST) for interstate transactions and imported goods or services.
Q8. Who Collects SGST?
The GST system adopts a dual structure, with Central GST (CGST) and State GST (SGST) concurrently imposed by the Central and State governments, respectively.
Q9. What is Cess tax Full Form?
Cess is a tax typically imposed to support services such as health and education, aiming at the development of social sectors. Governments use cess for social development purposes. The term is a shortened version of “assess,” and the spelling stems from a mistaken connection with “census.”
Q10. How Does RCM Work?
Usually, the supplier of goods or services bears the tax liability. The reverse charge mechanism, on the other hand, makes the recipient of goods or services accountable for paying the tax, thereby reversing the charge ability from the provider to the recipient.