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India has a federal structure of government – in other words, both entities i.e. the Centre as well as the State – hold certain powers in matters of administration. Taxation also, on similar lines, has been typically bifurcated between the two heads – while Excise Duty and Service Tax have been under the jurisdiction of the Centre, Sales Tax and later VAT has been under the jurisdiction of the States. The guiding principle in the previous regime largely was – that while the Centre had authority on the production of goods and services, States had the authority on the sales of those goods and services.
However, the introduction of GST brought about a major amendment – which gave powers to both Centre and State to levy taxes on the supply and consumption of goods and services. This was the prime basis on which all the indirect taxes were subsumed under one tax i.e. GST. However, in keeping with the federal nature of India, the government and the GST council decided to adopt the Dual GST model, which has been successfully implemented in Canada.
Under this dual model, GST will have the following 3 components –
In this regards, the availability of ITC for set-off of tax liability also becomes crucial for businesses across the country. The manner in which one can avail ITC against each of these 3 taxes are as follows:
Please note, that CGST and SGST cannot be set off against one another.
The above set-off order was amended and the following is the new order in which the ITC needs to be utilized.
Input tax credit |
IGST Output liability |
CGST Output liability |
SGST Output liability |
IGST |
(I) |
(II) – In any order in any proportion |
|
(III) Input tax credit on account of Integrated tax to be completely exhausted mandatorily |
|||
CGST |
(V) |
(IV) |
Not allowed |
SGST/UTGST |
(VII) |
Not permitted |
(VI) |
With the new rule, the IGST credit needs to be completely utilised before off setting it with CGST or SGST. The order of setting off ITC of IGST can be done in any proportion and any order towards setting off the CGST or SGST output after utilising the same for IGST output.
The fact that Union Territories are directly under the governance of the Central Government, differentiates them from the states, which have their own elected governments. This called for a separate taxation structure for the Union Territories and thus UTGST rate or Union Territory GST was introduced instead of SGST for the following 5 Union Territories in India –
In the Indian Constitution, the definition of ‘States’ included union territories with their own legislature. Hence the SGST Act also applied to the 2 union territories of Delhi and Puducherry – since they have their own legislature, with elected members and Chief Minister. For the rest of the 5 union territories listed above, UTGST rate will be levied for supply of goods and services.
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