When you raise a GST invoice in India, you do not simply write "GST 18%". You need to split that tax into the correct components — either CGST + SGST, or IGST — depending on where your buyer is located. Getting this wrong is one of the most common mistakes small businesses make, and it can invalidate your buyer's Input Tax Credit claim. Here is a clear, plain-language guide to all three.
Why does India have three GST components?
India's GST is a dual tax, meaning both the central government and state governments collect a share of it. The structure was designed so that neither level of government steps on the other's revenue. When a sale happens within a single state, both the Centre and the State share the tax. When a sale crosses state lines, the Centre collects the full amount and then distributes the state's share separately.
This is why you will see three abbreviations on any GST invoice: CGST (Central GST), SGST (State GST), and IGST (Integrated GST). Understanding which one applies is straightforward once you know the rule.
What is CGST?
CGST stands for Central Goods and Services Tax. It is collected by the Government of India and goes entirely into the central government's treasury. CGST is always charged alongside SGST — you will never see CGST appearing alone on an invoice.
The CGST rate is always exactly half the total GST rate applicable to the goods or services being sold. If the GST rate on a product is 18%, the CGST component is 9%.
What is SGST?
SGST stands for State Goods and Services Tax. It is collected by the state government where the seller is located, and the revenue stays in that state. Like CGST, SGST is always half of the total applicable GST rate.
In Union Territories (such as Chandigarh, Dadra & Nagar Haveli, or Lakshadweep), the equivalent is called UTGST — Union Territory GST — which works exactly the same way as SGST for invoicing purposes.
What is IGST?
IGST stands for Integrated Goods and Services Tax. It applies whenever goods or services move across state borders — in other words, whenever the seller and buyer are in different states. IGST is collected entirely by the central government, which then distributes the destination state's share to that state's government in the background.
From a business perspective, you simply charge IGST at the full applicable rate. You do not need to worry about the inter-government settlement — that is handled automatically in the GST filing system.
GST rate split — quick reference table
This table shows how the most common GST rates split into their components for intrastate and interstate sales:
| Total GST Rate | Intrastate: CGST | Intrastate: SGST | Interstate: IGST |
|---|---|---|---|
| 5% | 2.5% | 2.5% | 5% |
| 12% | 6% | 6% | 12% |
| 18% | 9% | 9% | 18% |
| 28% | 14% | 14% | 28% |
Practical examples
Let's look at two real-world scenarios to make this concrete.
Example 1: Intrastate sale (same state)
A software consultant based in Bengaluru (Karnataka) raises an invoice for ₹1,00,000 to a client also located in Bengaluru. The applicable GST rate for IT services is 18%.
- Since both parties are in Karnataka, this is an intrastate transaction
- CGST at 9% = ₹9,000
- SGST at 9% = ₹9,000
- Total invoice value = ₹1,18,000
- IGST = ₹0 (not applicable)
Example 2: Interstate sale (different states)
The same consultant in Bengaluru raises an invoice for ₹1,00,000 to a client in Mumbai (Maharashtra). The GST rate is still 18%.
- Since the seller is in Karnataka and the buyer is in Maharashtra, this is an interstate transaction
- IGST at 18% = ₹18,000
- Total invoice value = ₹1,18,000
- CGST = ₹0, SGST = ₹0 (not applicable)
Common mistakes to avoid
Many small businesses make these errors when applying GST components. Each one can result in a rejected ITC claim for your buyer, damaging your business relationship:
- Charging CGST+SGST on an interstate sale — This is incorrect even if the total amount matches. The buyer in the other state cannot claim SGST of your state against their IGST liability.
- Charging IGST on an intrastate sale — Also incorrect. The state government will not receive its due share and the invoice can be disputed during GST audit.
- Not mentioning Place of Supply — This field determines which component applies and is mandatory on every invoice.
- Rounding errors in the split — Always ensure CGST and SGST are exactly equal and their sum equals the total applicable GST amount.
How ITC works across the three components
Input Tax Credit (ITC) rules determine how the GST you pay as a buyer can be offset against the GST you collect as a seller. The ITC utilisation order matters and follows strict rules set by the GST Council:
- IGST paid can be used to offset IGST, CGST, or SGST liability — in that order of priority
- CGST paid can only offset CGST or IGST liability (not SGST)
- SGST paid can only offset SGST or IGST liability (not CGST)
This is why correct component labelling on your invoice directly affects your buyer's ability to efficiently utilise their ITC balance.
Quick summary
CGST, SGST, and IGST are all components of the same GST — they simply represent how the tax revenue is split between the central and state governments. The decision between CGST+SGST versus IGST comes down to one question: are your buyer and seller in the same state? If yes, use CGST+SGST. If no, use IGST. BazaarSathi automatically determines and splits the tax correctly based on the states you enter.