IGST stands for Integrated Goods and Services Tax. It is an essential component of India's Goods and Services Tax (GST) system, designed to regulate the taxation of inter-state transactions of goods and services. Unlike CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax), which apply to intra-state transactions, IGST (Integrated Goods and Services Tax) applies to transactions that involve the movement of goods or services between two different states.
Features of IGST
- Applicability to inter-state transactions: IGST is applicable to all transactions involving the supply of goods and services between two states. This includes union territories. It ensures uniformity in taxation for inter-state movements, eliminating the complexities of multiple state taxes.
- Uniform rate: The GST Council fixes the IGST rate, which then remains consistent across all states. This prevents the ambiguity of varying tax rates for inter-state transactions.
- Input tax credit (ITC): Businesses paying IGST on their purchases during inter-state transactions are eligible for claiming the input tax. This allows them to set off the IGST paid against their final tax liability, promoting a seamless tax credit mechanism.
- Destination principle: Under IGST, the tax revenue generated from an inter-state transaction goes to the state where the goods or services are ultimately consumed (destination state). This ensures that the taxing authority of the destination state benefits from the tax revenue.
Things to keep in mind about IGST
- Billing of IGST: In the case of an inter-state transaction, the seller must bill IGST on the invoice. The buyer then pays this amount, and the seller remits it to the central government.
- GSTIN requirements: Both the seller and the buyer involved in an inter-state transaction must have a valid GSTIN (Goods and Services Tax Identification Number) for seamless compliance with IGST regulations.
- Jurisdiction: The jurisdiction for IGST lies with the central government. It facilitates uniform administration and collection of taxes on inter-state supplies.
- Import and export: IGST also applies to goods and services imported into India or exported out of the country. The tax treatment differs depending on whether it is an import or export transaction.
Example for IGST with calculation
IGST stands for Integrated Goods and Services Tax. It is a type of indirect tax that is levied on the interstate supply of goods and services in India. IGST is collected by the central government, and the revenue is shared between the central and state governments.
For example, if a company in Maharashtra sells goods worth Rs. 1,00,000 to a buyer in Gujarat, the IGST rate is 18%. Therefore, the IGST amount would be calculated as follows:
IGST = (Value of Goods * IGST Rate)/100
IGST = (1,00,000 * 18)/100
IGST = Rs. 18,000
So, the seller in Maharashtra would collect Rs. 1,00,000 as the value of goods sold and Rs. 18,000 as IGST, and the total amount payable by the buyer in Gujarat to the seller would be Rs. 1,18,000.
How are the GST rates fixed?
The GST Council undertakes the fixation of all GST rates. It comprises representatives from both central and state governments. The Council meets periodically to review and revise the rates based on economic conditions and the need for revenue generation. The goal is to ensure a balanced tax structure while promoting ease of doing business and enhancing consumer welfare.
The GST rates fall into different slabs: 5%, 12%, 18%, and 28%, with additional rates for certain specific goods and services. The IGST rate is the same as the applicable CGST and SGST rates combined. For instance, if the CGST and SGST rates are both 9% in a particular state, the IGST rate for inter-state transactions would be 18%.
Refund of IGST
Refunds of IGST may arise in certain situations, such as when the input tax credit exceeds the output tax liability or due to export of goods or services. The GST refund process can be complex and involves filing refund applications with relevant documents to the concerned tax authorities.
Exporters can claim IGST paid on inputs used for the export of goods or services as a refund, enabling them to compete globally without any tax burden. The government has established specific procedures and timelines for the refund process to facilitate seamless refunds for eligible taxpayers.
In conclusion, integrated Goods and Services Tax (IGST) plays a crucial role in regulating inter-state transactions of goods and services in India. With its uniform rate and destination-based tax revenue distribution, IGST ensures a seamless and consistent tax framework across states. Businesses engaging in inter-state transactions must adhere to IGST rules and maintain valid GSTINs for efficient compliance.
Additional Read: GST Calculator
