Published 18 October 2026
Most explanations of GST begin with the rates. That is the wrong end. The rates change; the structure does not, and almost every practical difficulty a business runs into — the wrong tax charged, credit that cannot be used, a demand from a state that was not expecting one — comes from the structure rather than from the rate.
This is the first of a series that builds GST from the ground up. It covers what the tax replaced, why one supply can attract three different taxes, and which of them applies.
The problem it was built to solve
Before 1 July 2017 a single product moving from factory to customer could attract excise duty on manufacture, VAT on sale within a state, central sales tax on sale between states, service tax on the transport, entry tax on crossing a municipal boundary, and several smaller levies besides.
Each was administered by a different authority under a different statute. More importantly, credit did not flow between them. A manufacturer paying excise could not set it against the VAT he charged; a service provider paying service tax could not set it against VAT on goods he sold. Tax was therefore charged on tax, and the cost of that cascade was embedded in the price without anyone being able to see or recover it.
GST replaced that with a single levy on supply, with credit flowing along the chain, so that tax is borne only on the value each person actually adds.
One supply, three possible taxes
What confuses people first is that GST is not one tax. It is a set of parallel levies, and which pair applies depends on where the supply goes.
Within a state — the supplier and the place of supply are in the same state — the transaction attracts CGST, which goes to the Centre, and SGST, which goes to that state. The rate is split between them. A supply taxed at 18 per cent carries 9 per cent CGST and 9 per cent SGST, not 18 per cent of each.
Within a Union Territory without a legislature, SGST is replaced by UTGST, which works the same way.
Between states — supplier in one state, place of supply in another — the transaction attracts a single tax, IGST, at the whole rate. The Centre collects it and settles the state’s share afterwards.
The arithmetic is deliberately identical. A supply taxed at 18 per cent costs the recipient the same whether it crosses a state line or not. What differs is who receives the money, and which credit the recipient ends up holding.
The split is constitutional, not administrative
It is tempting to treat CGST and SGST as a bookkeeping convention. They are not. Before the Constitution (One Hundred and First Amendment) Act, 2016, the Centre could tax manufacture and services, and the states could tax the sale of goods. Neither could tax what the other taxed.
GST required both to tax the same event. The amendment made that possible by giving Parliament and the state legislatures concurrent power to levy tax on supply — which is why there is a Central Goods and Services Tax Act and, separately, a State Goods and Services Tax Act for each state, in nearly identical terms.
Two consequences follow, and both matter in practice.
The first is that a state Act is a real statute, not a copy. The provisions are mirrored, but it is the state Act that a state officer acts under, and amendments do not always land on the same day.
The second is that the Centre cannot tax an intra-state supply alone, and a state cannot tax an inter-state supply at all. That is why the classification is not negotiable: it is a question of legislative competence, not of convenience.
You do not choose which applies
This is the point at which businesses most often go wrong, and it is worth stating plainly. Whether a supply is intra-state or inter-state is not decided by where the invoice is raised, where the contract was signed, or where payment comes from. It is decided by the place of supply, which the IGST Act determines by its own rules — different rules for goods and for services, with a long list of exceptions.
The next guide in this series deals with supply itself, and the one after that with place of supply, because between them they decide almost everything else.
Getting it wrong is not a small error
If a supplier charges CGST and SGST where IGST was due, the tax has been paid — but to the wrong government, under the wrong Act. The recipient holds a credit he cannot use against the liability he actually has. The correct tax remains payable.
The law provides a route out, in section 77 of the CGST Act and section 19 of the IGST Act. A person who paid central and state tax on what is later held to be an inter-state supply is granted refund of it; a person who paid integrated tax on what is later held to be intra-state is granted refund of that.
The relief from interest also covers both directions, but it sits in two Acts. Section 77(2) of the CGST Act provides that a person who paid integrated tax, and is later held to owe central and state tax, shall not be required to pay any interest on the central tax that was actually due. Section 19(2) of the IGST Act gives the mirror relief: a person who paid central and state tax on what is later held to be an inter-state supply “shall not be required to pay any interest on the amount of integrated tax payable”. Reading only one of the two sections gives the impression that the relief runs one way.
And in either direction it is still a refund claim, with everything that involves, against a liability that has to be met in the meantime.
Where this series goes next
The order is not arbitrary. Each of these decides something the next one depends on:
- Supply — the event that triggers the tax, and what counts as one
- Place of supply — which decides CGST and SGST against IGST
- Time of supply — which decides the month the liability falls in
- Value of supply — which decides the amount it is charged on
After those four, registration, input tax credit, returns, and what happens when the department disagrees with you.
The Acts themselves are on this site in full: the CGST Act, the IGST Act, and the sections of each, searchable. This series is the explanation that sits beside them, not a substitute for reading them.