Why GST Has Three Types
India's GST is a dual system — both the central government and state governments collect tax on the same transaction. How the tax is split depends on whether the sale crosses state borders. This is why the same product can show different tax labels on invoices depending on where the buyer and seller are located.
CGST (Central Goods and Services Tax)
CGST is the portion of GST collected by the Central Government. It applies only on intra-state transactions (buyer and seller in the same state). CGST is always equal to SGST — together they add up to the full GST rate. Example: 18% GST on a ₹10,000 service = CGST 9% (₹900) + SGST 9% (₹900) = ₹1,800 total tax.
SGST (State Goods and Services Tax)
SGST is collected by the State Government for intra-state transactions. It is always the same rate as CGST. The state where the supply originates keeps this revenue. Example: A web developer in UP providing services to a client also in UP charges CGST 9% (goes to Centre) + SGST 9% (goes to UP government).
IGST (Integrated Goods and Services Tax)
IGST applies when goods or services cross state lines (inter-state supply). It is collected entirely by the Central Government, which then distributes the state's share. IGST = CGST rate + SGST rate combined. Example: The same UP web developer providing services to a client in Maharashtra charges IGST 18% instead of CGST + SGST. The client in Maharashtra can use this IGST credit to offset their CGST or SGST liabilities.
Quick Reference: When to Charge What
Same state (intra-state): CGST + SGST (e.g., Delhi to Delhi). Different state (inter-state): IGST only (e.g., Delhi to Mumbai). Export (outside India): 0% GST (zero-rated supply). Import (into India): IGST applicable. Special economic zones (SEZ): 0% for supplies to SEZ. The key trigger is always the customer's billing state versus your registration state.
How GST Billing Software Handles This Automatically
The easiest way to get CGST/SGST/IGST right every time is to use GST invoicing software that calculates it automatically. When you enter your customer's state, it instantly determines whether to split as CGST+SGST or charge IGST. Techfied Invoicer does this automatically — you just enter the customer's state, and the tax split happens without any manual calculation. This eliminates the most common source of GST errors for small businesses.
What Happens If You Charge Wrong GST?
If you charge CGST+SGST for an inter-state transaction (or vice versa), the recipient cannot claim ITC properly. The supplier must issue a credit note and a revised invoice. You may face GST scrutiny during audits. For high-volume businesses, wrong tax classification can lead to significant penalties. Prevention: verify your customer's state on every invoice and use automatic GST calculation software.