CGST, SGST and IGST: Which One You Actually Charge

The choice is decided by one comparison: if the place of supply is in the same state as the supplier, you charge CGST and SGST in equal halves; if it is in a different state, you charge IGST alone. The total the customer pays is identical either way. What changes is which government collects the money and which head the amount sits under in the ledgers, and that in turn changes what you can do with the credit later.

Why one tax was split into three heads

India is a federation in which both the Union and the states had independent power to tax, and both used it — the Centre on manufacture and services, the states on the sale of goods. A single national GST that replaced both would have had to answer an awkward constitutional question: who levies it, and who keeps the proceeds. The answer adopted in 2017 was a dual GST. The same transaction is taxed concurrently by two governments under two separate statutes, and the rate the customer sees is the sum of the two levies rather than either one on its own.

This is the single most important thing to hold on to. The split into CGST, SGST and IGST is an answer to the question which government collects. It is not a rate structure, and it does not change what the recipient pays. A business that has understood this stops worrying about whether IGST is somehow more expensive and starts worrying about the thing that actually costs money, which is credit that ends up under a head it cannot use.

CGST and SGST on an intra-state supply

When the supplier and the place of supply are in the same state, the supply is intra-state under section 8 of the IGST Act, and two levies attach to it simultaneously.

CGST — Central Goods and Services Tax — is levied by the Union under section 9 of the CGST Act, 2017. SGST — State Goods and Services Tax — is levied by the state on the very same supply under that state's own SGST Act, each of which mirrors the CGST Act almost clause for clause. Two statutes, two collecting governments, one transaction.

The rates are notified in pairs and are always equal. If the GST Council has notified a good at a headline rate, the intra-state invoice carries exactly half of it as CGST and exactly half as SGST, so that the two together come to the notified rate. There is no scenario in which CGST and SGST on the same line differ. When you are working out the halves for a real invoice, the GST calculator and our note on how to calculate GST handle the arithmetic, including the inclusive-price case where the tax has to be extracted from a figure that already contains it.

UTGST and the union territories

A union territory without its own legislature has no state government to levy SGST, so the UTGST Act, 2017 supplies the missing half. UTGST behaves exactly like SGST — same rate, same base, same position on the invoice — and applies in territories such as Chandigarh, the Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli and Daman and Diu, and Ladakh.

The exceptions catch people out. Delhi, Puducherry and Jammu and Kashmir are union territories with legislatures, which means they have their own SGST Acts and levy SGST rather than UTGST. If your accounting system maps every union territory to UTGST by default, invoices into Delhi will be wrong. The GST state code list is the reliable reference for which jurisdiction a GSTIN belongs to, since the first two digits of the number carry the code.

IGST on an inter-state supply

When the place of supply is in a different state or union territory from the supplier, the supply is inter-state, and the Centre levies a single IGST — Integrated Goods and Services Tax — under section 5 of the IGST Act. The rate is set at approximately the sum of the CGST and SGST rates for that item, which is why the customer is indifferent between the two routes.

IGST is not confined to sales across a state line. It also applies to imports of goods and services into India, where it is collected alongside customs duty at the point of import, and to any supply to or by a Special Economic Zone unit or developer — an SEZ located physically inside your own state is still treated as inter-state territory for GST purposes. Supplies to Nepal, Bhutan and other exports are zero-rated but still sit under the IGST head.

How the Centre passes IGST on to the consuming state

Because the Centre collects the whole of IGST, something has to move the state's share to the state that actually consumed the goods or services. Chapter VIII of the IGST Act does this through apportionment. When the recipient uses IGST credit to discharge an SGST liability, or when the supply goes to an unregistered consumer in a particular state, the corresponding amount is transferred from the IGST pool to that state in a periodic settlement between the Centre and the states.

That settlement is the machinery that makes GST a destination-based tax. Revenue follows consumption rather than production, which is a reversal of the old origin-based central sales tax, and it is the reason the place of supply rules carry so much statutory weight — they are, in effect, revenue-allocation rules wearing the clothes of invoicing rules.

The same sale, worked both ways

Assume a supplier in Maharashtra sells goods with a taxable value of ₹1,00,000, and assume the item is taxed at 18%. The table below shows the same sale twice: once to a buyer in Maharashtra, and once to a buyer in Karnataka. Rates move with GST Council notifications, so treat 18% here purely as an arithmetic illustration and confirm the live rate for your own HSN before invoicing.

The buyer pays ₹1,18,000 in both columns. Nothing about the commercial bargain changes. What changes is that the first invoice creates ₹9,000 of CGST credit and ₹9,000 of SGST credit in the buyer's ledger, while the second creates ₹18,000 of IGST credit — and those two positions behave very differently when the buyer comes to pay their own output tax. Both invoices must also show the tax heads separately, as the GST invoice format rules require; a consolidated "GST" line is not a compliant tax invoice.

Place of supply decides the head, not the lorry

The determination is made by comparing two legal facts: the location of the supplier and the place of supply as fixed by sections 10 to 13 of the IGST Act. Same state, CGST and SGST. Different states, IGST. Where the goods physically travelled is evidence, sometimes strong evidence, but it is not the test. Our guide to the place of supply rules works through the provisions for goods, services, immovable property and cross-border supplies in detail.

The classic trap is the bill-to-ship-to transaction. A supplier in Maharashtra is instructed by a trader, also registered in Maharashtra, to deliver goods directly to that trader's customer in Karnataka. The lorry crosses a state boundary, so the instinct is to charge IGST. Section 10(1)(b) of the IGST Act says otherwise: where goods are delivered to a recipient on the direction of a third person, the place of supply for the first leg is the principal place of business of that third person. The supplier is in Maharashtra and the place of supply is Maharashtra, so the first invoice carries CGST and SGST even though the goods never stop there. The trader then raises a second invoice to the Karnataka customer, and that one is inter-state and carries IGST.

The same logic bites on services delivered remotely. A consultant in Karnataka advising a client registered in Tamil Nadu charges IGST regardless of the fact that nobody moved and the work was done on a laptop in Bengaluru.

The set-off order and the cross-utilisation bar

Input tax credit does not sit in one pool. Your electronic credit ledger maintains separate balances for IGST, CGST, SGST or UTGST and cess, and sections 49, 49A and 49B of the CGST Act, with rule 88A, prescribe the order in which they may be spent.

Section 49A imposes the first rule: IGST credit must be exhausted before any CGST or SGST credit is touched. Rule 88A then relaxes what happens within the IGST pool — IGST credit is applied to IGST liability first, and whatever remains may be applied against CGST and SGST in any order and in any proportion the taxpayer chooses. That flexibility is genuinely useful, because it lets you steer residual IGST credit towards whichever of the two heads you are short on.

None of this changes what makes credit claimable in the first place — possession of a tax invoice, receipt of the supply, the supplier having reported and paid, and the payment condition in the second proviso to section 16(2). The input tax credit rules apply in full before the set-off sequence becomes relevant, and rate changes shift the picture too, since a move between rate slabs can turn a comfortable credit position into an accumulating one.

What happens when you charge the wrong head

Getting the head wrong is common, particularly on bill-to-ship-to chains and on services to clients registered outside the state where the work was performed. The law treats it as a correctable error rather than an evasion. Section 77 of the CGST Act, read with section 19 of the IGST Act, provides that a person who paid CGST and SGST on a supply later held to be inter-state is refunded that tax, and pays IGST instead; the same works in reverse. Critically, no interest is charged on the correct-head payment, so the mistake does not carry a financing penalty from the department.

Rule 89(1A) sets the window: the refund application must be filed within two years from the date of paying the tax under the correct head. Note the anchor — the clock runs from when you put the position right, not from the original invoice, which is what makes the relief workable when an error surfaces years later during an audit.

What the relief does not remove is the cash-flow event. You pay the correct tax now and wait for the refund of the incorrect one, and refunds move through the RFD-01 process at their own pace. On a large contract that gap is real working capital. Alongside it, the recipient has to reverse credit taken under the wrong head and claim it afresh under the right one, which they will not enjoy explaining to their own auditors. The head is decided by rules that are knowable in advance, so the cheapest place to fix this is on the invoice.

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