Earlier, the States effecting inter-State sale of goods were empowered to collect and retain Central Sales Tax (CST) under the Central Sales Tax Act, 1956.
The difficulties faced in the erstwhile Central Sales Tax system are:
(i) The levy is non-vatable i.e. the credit of CST is not available as a set-off in the hands of the purchaser.
(ii) CST directly gets added to the cost of the goods resulting in cascading effect of the taxes on the cost of production of products.
(iii) Creation of tax arbitrage on account of the rate of CST being different from VAT levied on intra-State sale.
(iv) Several businesses are not in a position to procure goods in the course of inter-State trade or commerce after concessional rate of tax against the declaration forms.
To usher in the GST regime, levy of a single tax called Integrated Goods and Service Tax is considered necessary on the supply of goods or services or both taking place in the course of inter-State trade/ commerce. The rate of tax is equal to the sum total of Central Tax (CGST) and State Tax (SGST) or Union Territory Tax (UTGST), though there are some cases where more rationalisation is required in terms of parity of net tax incidence. The new legislation, amongst others, broadly:
(i) Provides for levy of tax on all inter-state supplies of goods or services or both (except alcoholic liquor for human consumption) at a rate recommended by the GST Council (not exceeding 40%);
(ii) Provides for levy of tax on goods imported into India;
(iii) Provides for levy of tax on import of services on a reverse charge basis;
(iv) Empowers the Central Government to grant exemptions on the recommendation of the GST Council;
(v) Provides for determination of nature of supply (intra-state or inter-State) and place of supply
(vi) Provides for payment of tax by a supplier of Online Information and Database Access or Retrieval Services (OIDAR)
(vii) Enables apportionment of tax and settlement of funds on account of transfer of input tax credit between the Central Government, State Government and Union Territory;
(viii) Provides for application of certain provisions of the Central Goods and Service Tax Act, 2017 to the extent relevant for this Act;
(ix) Provides for transitional transactions in relation to the import of services.
Procedures and best practices for accurate calculation
Accurate calculation of Integrated Goods and Services Tax (IGST) is crucial to ensure compliance with tax regulations. Here are procedures and best practices to help you with the accurate calculation of IGST:
- Understand GST Rates: Stay informed about the GST rates applicable to your goods or services. GST rates may vary, and it’s important to use the correct rate for accurate calculations.
- Determine the Place of Supply: Accurately determine the place of supply, as it plays a key role in deciding whether CGST SGST or IGST is applicable. The place of supply depends on the type of transaction (goods or services) and specific conditions outlined in the GST law.
- Include all Taxable Components: Ensure that all taxable components are considered for IGST calculation. This includes the transaction value, freight, packing charges, and any other charges that are part of the consideration for the supply.
- Calculate IGST Correctly: Use the correct formula for IGST calculation: IGST = (Transaction Value * Applicable IGST Rate) / 100.
Verify the accuracy of calculations to avoid errors.
- Invoice Documentation: Generate GST-compliant invoices with all the necessary details, including the IGST amount. Clearly mention on the invoice that IGST is applicable.
- Round-off Procedures: Follow the rounding-off procedures specified in GST laws to ensure that the final IGST amount is rounded off correctly.
- Reverse Charge Mechanism (RCM): Be aware of situations where reverse charge mechanism (RCM) is applicable. In RCM, the recipient is liable to pay the tax, and IGST may need to be calculated accordingly.
- Timely Input Tax Credit (ITC) Reconciliation: Reconcile Input Tax Credit (ITC) regularly to ensure that the IGST paid on purchases aligns with the IGST collected on sales. Timely reconciliation helps identify and correct any discrepancies.
- Use Technology and Software: Leverage accounting software or enterprise resource planning (ERP) systems that are GST-compliant. Automation reduces the risk of manual errors and ensures accurate calculations.
- Regular Training for Staff: Train your accounting and finance teams to stay updated on GST rules and regulations. This includes understanding changes in rates, exemptions, and any amendments to the law.
- Periodic Internal Audits: Conduct internal audits to review the accuracy of IGST calculations and compliance with GST regulations.
- Consult with Tax Professionals: Seek advice from tax professionals or consultants, especially in complex transactions or situations where interpretation of the law is challenging.
- Stay Informed about Changes: Regularly check for updates and changes in GST laws and rates. Subscribe to official notifications and circulars issued by tax authorities.
| Principal Amount | Percentage | Pre-IGST Amount | Amount after adding IGST |
| Cost of goods & services | NA | 200,000 | 200,000 |
| Profit | 10.00% | 200,000 | 200,000 |
| Exercise Duty | 12.50% | 27,500 | Nil |
| Total | NA | 247,500 | 220000 |
| VAT | 12.50% | 30,938 | Nil |
| SGST | 6% | Nil | 13200 |
| CGST | 6% | Nil | 13200 |
| Final invoice for manufacture | NA | 278,438 | 246,400 |
Also Read: Import Of Goods And Services And Applicability Of Integrated Goods And Services Tax (IGST)
Procedures and best practices for accurate payment
Accurate payment of taxes, including Integrated Goods and Services Tax (IGST), is crucial for maintaining compliance and avoiding penalties. Here are procedures and best practices for ensuring accurate payment of IGST:
- Timely Payment: Ensure timely payment of IGST to avoid interest and penalties. Payments are typically made on a monthly or quarterly basis, depending on your business turnover.
- Understand Payment Due Dates : Know the due dates for IGST payment as prescribed by the tax authorities. Different due dates may apply for businesses with different turnover levels.
- Use Correct Challans: Use the correct GST payment challan provided by the tax authorities. Fill in all the required details accurately, including your GSTIN, name, address, tax period, and the amount to be paid.
- Electronic Payment: Make payments electronically through the GST portal. Electronic payments ensure accuracy and reduce the chances of errors associated with manual processing.
- Payment of IGST Liability: Pay the IGST liability separately and distinctly from Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) liabilities.
- Use Online Banking Services: If making payments through electronic funds transfer, use secure online banking services. Confirm that the transaction details are correct before authorising the payment.
- Maintain Adequate Funds: Ensure that your business has adequate funds available to cover the IGST liability on the due date.
- Regular Reconciliation: Reconcile your sales and purchase data regularly to ensure that the IGST liability matches the transactions recorded in your books.
- Utilise Input Tax Credit (ITC): Utilise available Input Tax Credit against your IGST liability. Reconcile ITC with your purchases to maximise the credit available for set-off.
- Review and Verify Returns: Before making payments, review and verify your GST returns to ensure that the information is accurate. Correct any errors in the returns before proceeding with the payment.
- Filing Returns on Time: File your GST returns on time, as accurate payment is based on the information provided in the returns. Late filing can lead to late fees and interest.
- Regular Internal Audits: Conduct regular internal audits to identify any discrepancies in the GST payments and rectify them promptly.
- Seek Professional Advice: Consult with tax professionals or financial advisors to ensure that your payment processes align with the latest GST laws and regulations.
- Stay Informed: Stay updated on changes in GST rules and regulations, as these changes can impact payment procedures. Subscribe to official notifications and circulars issued by tax authorities.
- Document Payment Transactions: Maintain proper documentation of all IGST payments, including challans, acknowledgement receipts, and other relevant records.
Also Read: How to Calculate the IGST liability in GSTR-8 Part 2?
Procedures and best practices for accurate reporting of IGST
Accurate reporting of Integrated Goods and Services Tax (IGST) is crucial for businesses to comply with tax regulations. Here are procedures and best practices to ensure the accurate reporting of IGST:
- Maintain Detailed Records: Keep detailed records of all transactions involving IGST, including invoices, receipts, and supporting documents. This information is essential for accurate reporting and future audits.
- GST-Compliant Invoices: Generate GST-compliant invoices with all the required details, including the GSTIN, description of goods or services, quantity, value, and tax details. Clearly mention on the invoice that IGST is applicable.
- Proper Classification of Transactions: Ensure the correct classification of transactions as intra-state or inter-state to determine the applicability of IGST.
- Accurate Calculation of IGST: Calculate IGST accurately based on the transaction value and the applicable GST rates. Use the correct formula for IGST calculation: IGST = (Transaction Value * Applicable IGST Rate) / 100.
- Reconciliation of Sales and Purchase Data: Regularly reconcile your sales and purchase data to ensure consistency and accuracy. This helps identify and rectify any discrepancies in reporting.
- Periodic Internal Audits: Conduct internal audits of your GST transactions to review the accuracy of reporting and compliance with GST regulations. Address any issues identified during the audit.
- Timely Filing of GST Returns: File GST returns on time, as accurate reporting is based on the information provided in the returns. Late filing can lead to penalties and interest.
- Use of Technology: Leverage accounting software or ERP systems that are GST-compliant. Automation reduces the risk of manual errors in reporting and ensures accurate calculations.
- Reconcile Input Tax Credit (ITC): Reconcile ITC regularly to ensure that the IGST paid on purchases aligns with the IGST collected on sales. Timely reconciliation helps identify and correct any discrepancies.
- Cross-Verify with GST Portal: Cross-verify the information reported in your returns with the details available on the GST portal. This helps identify any mismatches that need correction.
- Documentation of Adjustments: Document any adjustments made to the IGST liability or Input Tax Credit. Clearly mention the reasons for adjustments and maintain proper records.
- Stay Informed about Changes: Regularly check for updates and changes in GST laws and rates. Subscribe to official notifications and circulars issued by tax authorities to stay informed.
- Staff Training: Train your accounting and finance teams to stay updated on GST rules and regulations. Ensure that they are aware of any changes that may impact reporting.
- Seek Professional Advice: Consult with tax professionals or consultants for specific advice, especially in complex transactions or situations where interpretation of the law is challenging.
- Maintain Compliance with E-Invoicing Requirements: If applicable, comply with e-invoicing requirements. Ensure that the electronic invoices generated and reported are in accordance with the prescribed standards.
Conclusion
In summary, IGST is important for creating a unified and efficient tax system, promoting economic growth, reducing complexities in inter-state transactions, and ensuring fair revenue distribution among different levels of government.
IGST aligns with the core principles of GST, which include a destination-based tax system, seamless flow of input tax credit, and the elimination of tax cascading. It contributes to the overall success and effectiveness of the GST regime.
By adhering to these procedures and best practices, businesses can enhance the accuracy of their IGST reporting and minimise the risk of non-compliance. Keep in mind that tax laws may change, so it’s important to stay informed and adapt reporting processes accordingly.
Also Read: Understanding Integrated Goods And Services Tax (IGST) In Inter-State Transactions In India
FAQ
- Why is the accurate calculation of IGST important in inter-state transactions?
Accurate IGST calculation ensures compliance with tax regulations and helps businesses avoid penalties. It also contributes to transparent financial reporting.
- What procedures should businesses follow for precise IGST calculation in inter-state transactions?
Businesses should understand GST rates, determine the correct place of supply, use the accurate IGST formula, and consider all taxable components in the transaction value.
- How can businesses ensure accurate reporting of IGST in inter-state transactions?
Accurate reporting involves maintaining detailed records, generating GST-compliant invoices, and regularly reconciling sales and purchase data to identify and rectify discrepancies.
- Why is the proper classification of transactions crucial for accurate IGST reporting?
Correctly classifying transactions as intra-state or inter-state is essential to determine the applicability of IGST. Misclassification can lead to errors in reporting and compliance.
- What are the best practices for reconciling Input Tax Credit (ITC) in inter-state transactions?
Businesses should reconcile ITC regularly to ensure that IGST paid on purchases aligns with IGST collected on sales. Timely reconciliation helps in identifying and correcting discrepancies.
- How can technology and software assist in accurate IGST reporting for inter-state transactions?
Leveraging GST-compliant accounting software or ERP systems automates calculations, reduces manual errors, and ensures accurate reporting of IGST transactions.
- What role do periodic internal audits play in maintaining accurate IGST reporting?
Internal audits help businesses review the accuracy of their GST transactions, identify compliance issues, and take corrective actions to ensure accurate reporting.
- Why is the timely filing of GST returns crucial for accurate IGST reporting?
Timely filing of returns is essential as accurate reporting is based on the information provided in the returns. Late filing can lead to penalties and interest.
- How can businesses stay informed about changes in GST laws that may impact IGST reporting?
Regularly checking for updates and changes in GST laws, subscribing to official notifications, and seeking professional advice helps businesses stay informed and adapt to regulatory changes.
- What documentation practices are recommended for adjustments made to IGST liability or Input Tax Credit?
Businesses should document any adjustments made to IGST liability or ITC, clearly mentioning the reasons for adjustments. Proper record-keeping is crucial for accurate reporting.
