What is Union Territory GST (UTGST) and Why It Is Implemented?

Updated on : March 17, 2023 - 4 p.m. 17 min read.

Goods and Services Tax (GST) is an indirect tax system that was implemented in India on July 1, 2017. The introduction of GST aimed to streamline the country's tax system by replacing various indirect taxes with one comprehensive tax. The GST system has been implemented across India, including Union Territories. However, the implementation of GST in Union Territories differs slightly from that in states. Union Territory GST (UTGST) is a component of GST that is levied on the supply of goods and services within the Union Territories of India. In this blog, we will discuss UTGST, its implementation, and its significance in India's tax system.

Why Union Territory GST Is Implemented?

Union Territory GST (UTGST) is implemented in the Union Territories of India to simplify and streamline the country's tax system. GST is a comprehensive tax system that replaces various indirect taxes, such as excise duty, service tax, and value-added tax (VAT). It was introduced to unify India's tax structure, promote ease of doing business, and reduce tax evasion.

UTGST is a part of the GST system and is levied on the supply of goods and services within the Union Territories. The implementation of UTGST was necessary as Union Territories do not have their own legislative assemblies to pass laws regarding taxes. Therefore, the central government introduced UTGST, which is similar to State GST (SGST) but is implemented in Union Territories.

The implementation of UTGST has several benefits, including the simplification of the tax system, reduction in tax evasion, and increased revenue for the government. UTGST eliminates the cascading effect of taxes, which means that taxes are not levied on top of each other, leading to a reduction in the final price of goods and services.

Another significant benefit of UTGST is that it promotes ease of doing business in Union Territories. It simplifies the tax structure, making it easier for businesses to comply with the tax laws and regulations. UTGST also helps in the smooth movement of goods and services within Union Territories by reducing the documentation and compliance burden on businesses.

Eligibility

Any business or individual that supplies goods or services within the union territories is eligible to register for UTGST. Additionally, businesses with an annual turnover of up to Rs. 20 lakh (Rs. 10 lakh for special category states) are exempted from UTGST registration.

Tax Rate of UTGST

The rate of UTGST is the same as the rate of State GST (SGST) for goods and services. Currently, there are four tax slabs under GST

0%
5%
12%
18%
28%

However, the actual rate of UTGST will depend on the nature of the goods or services being supplied and the applicable GST rate for the same. Additionally, certain goods and services are exempted from GST, and therefore, there is no UTGST applicable on them. The rates of GST are determined by the GST Council, which comprises representatives from the central and state governments. The council meets periodically to review the tax rates and make changes if necessary.

Collection of UTGST

UTGST is collected by the Union Territory tax authorities in the same manner as SGST is collected by the state tax authorities. The UTGST collected is then divided between the Union Territory and Central Governments in a pre-determined ratio.

The UTGST collection process is similar to that of other GST taxes. The taxpayer must register for UTGST and obtain a GST identification number (GSTIN). They must then collect the UTGST from their customers and pay it to the government. The UTGST paid on purchases can be set off against the UTGST collected on sales, and the balance amount, if any, must be paid to the government.

To ensure compliance with the UTGST provisions, the government has established a robust GSTN (Goods and Services Tax Network) system, which serves as a platform for registration, filing returns, payment of taxes, and refund claims. The GSTN system has made the UTGST collection process much more efficient, transparent, and streamlined.

List of Union Territories under GST

There are 8 Union Territories in India, out of which 6 are currently under the purview of GST. The list of Union Territories under GST is as follows:

Lakshadweep
Andaman & Nicobar Islands
Dadra & Nagar Haveli and Daman & Diu
Chandigarh
Ladakh
Jammu and Kashmir

New Delhi and Puducherry are treated as "Union Territories with a legislature" under the Constitution of India and have their own elected legislative assemblies. Hence, State GST is applicable in these territories instead of Union Territory GST

Example of UTGST Charged

Let's say you purchase a product worth Rs. 1,000 from a seller in the Union Territory of Chandigarh. The GST rate applicable to that product is 18%. Here's how the UTGST and CGST components would be charged in this case:

UTGST: 9% of Rs. 1,000 = Rs. 90 CGST: 9% of Rs. 1,000 = Rs. 90

The total GST applicable on the product is Rs. 180 (UTGST + CGST). So, the total cost of the product including GST will be Rs. 1,180 (Rs. 1,000 + Rs. 180). This is just an example to help you understand how UTGST is charged on a product or service purchased within a Union Territory. The actual GST rates and components may vary depending on the nature of the product or service and the UTGST rates applicable in the respective Union Territory.

By Amit Pawar

Categories