Published on:
December 26, 2022

UTGST: A Detail Study

The GST Council claims that the Constitution (One Hundred and First Amendment) Act, 2016, established a new clause, namely Clause 26B on "State" in Article 366, which is necessary to fulfill the constitutional requirement. This is why the GST Council has incorporated the UTGST. According to this provision, a Union territory with a legislature is included in the definition of "State" for the purposes of Articles 246A, 268, 269, 269A, and 279A. According to Schedule 1 of the Indian Constitution, the territory of India consists of States and Union Territories. This Schedule provides that there are 29 states and 7 Union Territories There are 7 union territories out of which,

a. 2 Union Territory with the legislature - Puducherry and Delhi and

b. 5 Union Territory without legislature - Andamans and Nicobar Islands, Dadra & Nagar Haveli, Lakshadweep and Daman and Diu

However, the GST definition of "State" also includes a union territory with a legislature. In the union territories, where there is no legislature, the UTGST bill aims to apply a tax collection on all intra-UT supplies of goods and services. It shares many characteristics with the SGST. Overall, the SGST is unable to provide the necessary provision in this instance, and as a result, the UTGST has assumed its position.


UTGST stands for Union Territories Goods and Services Tax.The UGST-related transactions are carried out by the Indian Union Territories. The Union Territories include Chandigarh, Daman, Diu, Lakshadweep, Dadra and Nagar Haveli, and the Andaman and Nicobar Islands. In terms of apportionment and payment regulations, this tax is comparable to the SGST.

The Union Territory Goods and Services Tax, or UTGST, is a tax imposed by the governments of the Union Territories on the intra-territory supply of goods and services. It alludes to the tax imposed on the provision of goods and services within a Union Territory. It is assessed alongside CGST and is governed by the UTGST Act.

Similar to the SGST, UTGST is imposed in Union Territories that lack their own legislature. UTGST is applicable on purchases made in Chandigarh, Dadra and Nagar Haveli, Daman and Diu, and Lakshadweep, all of which are Union Territories. Please be aware that because Delhi and Puducherry are union territories with their own legislatures, they would be subject to SGST law. The order of ITC utilisation of UTGST is similar to SGST. ITC of UTGST should first be set off against UTGST. Any balance remaining may be used to set off any IGST liability.

There are two types of union territories in India:

a. Union territory with the legislature

b. Union territory without legislature

Delhi and Puducherry are the two union territories that currently have a legislature. These particular union territories have an established legislature and an elected executive branch. As a result, SGST is applicable to these states. The other union areas are directly under the central government's administration. A Lieutenant Governor serves as the executive of Union Territories that are currently ruled by the Central Government. He was chosen by the Central Government of India to serve as the President's delegate. These UTs are ruled by the UTGST Act.

Why UTGST is Implemented?

The GST Council has taken up the major agenda for which the supreme body has introduced the UTGST, which would continue to offer advantages similar to SGST. Apart from that, New Delhi and Puducherry will continue to benefit from the SGST rules because both states have independent legislatures, are allowed to function without restriction under the SGST, and are also regarded as states by the GST Council.

Applicability of UTGST

"Output tax" pertaining to a taxable person, as defined by section 2(7), is the Union territory tax charged under the UTGST Act on the taxable supply of goods or services or both produced by the business (or by its agents), although it does not include tax that is due on a reverse charge basis.

Understanding UTGST with Example

Assuming the rates of CGST, SGST, UTGST are 9% and IGST 18%

1. Goods or Services or both are transferred within Mumbai

Since the products are provided within Mumbai, they should be taxed in accordance with section 9(1) of the CGST Act (as well as in the SGST Act). The Central Government will receive the CGST payment, while the State Government will receive the SGST payment. Additionally, SGST would be imposed on Union Territory by the legislature.

2. Goods or Services or both transferred from Mumbai To Daman and Diu

Due to the interstate transfer of goods or services (from Mumbai to Daman & Diu), IGST would be charged and transferred to the Central Government as noted above in accordance with sections 7(1) and 7(3) of the IGST Act.

3. Goods or Services or both transferred within Daman and Diu

The IGST Act's sections 8(1) and 8(3) should be applied since the items were provided within Daman and Diu. The CGST will go to the Central Government, and the UTGST will go to the Union Territory.

Payment Tax

The tax paid on inputs is credited as an input tax credit (purchases). It may be deducted from production taxes that must be paid to the government.

Section 9 of the UTGST Act prescribes the following usage for any input tax credit that a registered person possesses in his ledger (in electronic form):

If you have a GST input tax credit, you should first apply it to the IGST and if any money is left over, apply it to the CGST, SGST, or UTGST in that sequence.

Similarly, if the CGST has no balance, the UTGST credit input must be utilized first to offset Union Territory tax before being applied to the IGST.

To put it another way, every input tax credit—CGST, SGST, UTGST, or IGST—must first be offset against a payment of the same kind. If any money is left over, it should be used to offset the other Tax in the manner described above.

Grant Exemption from Tax

According to Section 8 of the UTGST Act, which lists the situations in which an exemption may be granted, the Central Government may in certain instances excuse a taxpayer from paying tax.

The Central Government will issue the notification on general or specified items as decided will be granted exemption from the date of notification on suggestions from the Council member, in the interest of the public.

Being in a position of authority, the central government can make exceptional orders for goods or services when there are specific conditions that call for an exemption, such as promoting their use.


Read more: Types of GST, GST mandatory fields, Rule 39.

Updated on:
March 10, 2023