IGST full form translates to Integrated Goods and Services Tax. IGST is one of the three components of Goods and Services Tax. IGS tax is levied when there is an inter-state transfer of goods and services.
The three components of GST are:-
- CGST: Central Goods and Services Tax
- SGST: State Goods and Services Tax
- IGST: Integrated Goods and Services Tax
When GST was introduced by the central government in July 2017, the idea was to subsume all the various indirect taxes into one. The reason to implement GST was to simplify the indirect taxation system for the supply and demand side. India is a federal country and we have many levels of governance. In terms of finance, both central and state governments are permitted to collect and levy taxes.
What is IGST?
The full form of IGST is the Integrated Goods and Services Tax. The GST category applies to taxes levied on interstate purchases or supplies of taxable services and goods and imports of services and goods. The Central Government collects IGST and it is subsequently distributed among all the respective states.
When a good or service travels from one state to another state, IGST is compensated. Between the central & state governments, the tax is distributed. To settle the interstate tax amounts, the state compromises with the central government and not with other governments.
Integrated Goods and Service Tax or IGST numerically equals= CGST+SGST. The movement of goods from New Delhi to Agra will attract IGST.
Characteristics of IGST
The GST act governs IGST levies. The Centre would levy IGST, that would be CGST plus SGST, on all inter-state payments of taxable supplies, as per the IGST Act. The Central Government shall levy the tax and the tax shall be distributed between the union and states in the manner provided by the legislation of Parliament mostly on suggestions of the Goods & Services Tax Council.
- The inter-state demand for goods and services is valid.
- It implies that the consuming state receives the SGST component of IGST Tax.
- Input Tax Credit chain transparency in inter-state supplies is maintained.
- The earlier CST (Central Sales Tax) Act, 1956, was abolished.
- Integrated GST also refers to products and services being imported into India. The basic principle is that any carriage of products or services during the importation of goods/ services into the union of India is known as an inter-state exchange or exchange supply and is, therefore, the liability of IGST.
IGST Explained: An Example
IGST = CGST + SGST |
But this is just a numerical game. It does not mean that IGST is more expensive.
Let’s take the example of cashew nuts.
- Interstate: Cashew nuts attract an IGST of 5% in case of interstate transfer. So if cashew nuts are being sold from Delhi to Agra, traders in Agra will pay the IGST, traders in Delhi will collect it and they pay it to the government
- Intrastate: In case of transfer within the same state, it will attract a CGST of 2.5% that goes to the central government and SGST of 2.5% that goes to the central government. In total, the tax incidence is 5%.
So, CGST and SGST are two halves of the IGST. This goes the same for all the products.
Let’s have a look at an IGST example.
Say there is a registered trader, Mukesh, based out of Ahmedabad who sold goods to Ajay, a trader based out of Mumbai for Rs 20 lakh, and Ajay further sold them to Anita, a registered trader in Lucknow for Rs 25 lakh.
Stage 1
Mukesh to Ajay
Mukesh will collect the IGST on Rs 20 lakh from Ajay.
Say the IGST tax rate applicable here was 5%.
Ajay’s payment to Mukesh is 21 lakh inclusive of GST this extra Rs 1 lakh can be claimed in the next stage.
Stage 2
Ajay sells these goods again to Anita at 5%. Ajay will collect a total of Rs 22,05,500. Out of which, he will have to pay Rs 1,05,000 to the government which he received as tax.
However, Ajay can claim the input tax credit on this amount.
Remember in Stage 1, Ajay had paid Rs 1 lakh as IGST to Mukesh. He can set this amount off with Rs 1.05 lakh and pay Rs 5,000 to the government.
Which State will Receive the Tax Revenue?
So, in the IGST example, for the transaction between Mukesh and Ajay, the tax will be accrued to Maharashtra finally. This is when the central government will distribute the tax to the state after receiving it from the traders. So after Mukesh submits the total IGST tax with the central government, the state’s share will be passed on to the Maharashtra state government.
Similarly, for the trade between Ajay and Anita, Uttar Pradesh will get the accrued benefit. After Ajay files the tax he collected from the transaction with the central government, it is Uttar Pradesh that will receive its share from the total IGST paid by Ajay.
Integrated Goods and Services Tax collected at various stages by the traders is paid to the central government first, after which, the central government distributes or shares the state government’s share with them according to the rates fixed by the authorities.
This has helped Ajay to stay away from double taxation.
Therefore, in simple words, IGST is paid by the receiving person, collected by the sender, given to the central government, and distributed between central and state governments.
How are the GST Rates Fixed?
With the onboarding of the Goods and Services tax regime in the year 2017 and the exit of indirect taxes, the government had also put in place a GST Council. This council looks after setting the rates in consultation with the government, grievances of traders and customers; in short, it takes care of the entire GST universe.
The GST council conducts several meetings where it shares with the media important decisions that have been taken. It is in these review meetings that the GST council announces a change in GST rates if any. The rates are fixed by the council in consultation with the government and relevant ministries, depending on the product.
Refund of IGST
- The integrated tax for foreign tourists is a similar pattern to that of exports, given that international tourists known to be non-resident of India makes a visit to the country for a period not exceeding six months. The Indian tax law facilitates the refund of IGST paid to an international tourist leaving India on goods being taken outside the country.
- The refund to taxpayers who have remitted payments to another tax head, that is SGST or CGST instead of IGST, and it would be refunded. Such citizens must be made a re-deposit in the respective tax head.
FAQs
Can IGST Be Adjusted Against SGST?
SGST input tax credit (ITC) can’t be utilised to pay the liability of CGST but it can be used to pay the liability under States Goods and Service Tax (SGST).
Moreover, the SGST credit balance present can be utilised to pay off the liability of IGST.
When IGST is applicable?
IGST applies to any supply of goods/services in conditions of export from India and import into India.
Practice area's of B K Goyal & Co LLP
Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice | Psara License | FCRA Online
Company Registration Services in major cities of India
Company Registration in Jaipur | Company Registration in Delhi | Company Registration in Pune | Company Registration in Hyderabad | Company Registration in Bangalore | Company Registration in Chennai | Company Registration in Kolkata | Company Registration in Mumbai | Company Registration in India | Company Registration in Gurgaon | Company Registration in Noida | Company Registration in lucknow
Complete CA Services
RERA Services
Most read resources
tnreginet |rajssp | jharsewa | picme | pmkisan | webland | bonafide certificate | rent agreement format | tax audit applicability | 7/12 online maharasthra | kerala psc registration | antyodaya saral portal | appointment letter format | 115bac | section 41 of income tax act | GST Search Taxpayer | 194h | section 185 of companies act 2013 | caro 2020 | Challan 280 | itr intimation password | internal audit applicability | preliminiary expenses | mAadhar | e shram card | 194r | ec tamilnadu | 194a of income tax act | 80ddb | aaple sarkar portal | epf activation | scrap business | brsr | section 135 of companies act 2013 | depreciation on computer | section 186 of companies act 2013 | 80ttb | section 115bab | section 115ba | section 148 of income tax act | 80dd | 44ae of Income tax act | west bengal land registration | 194o of income tax act | 270a of income tax act | 80ccc | traces portal | 92e of income tax act | 142(1) of Income Tax Act | 80c of Income Tax Act | Directorate general of GST Intelligence | form 16 | section 164 of companies act | section 194a | section 138 of companies act 2013 | section 133 of companies act 2013 | rtps | patta chitta