Integrated Goods and Services Tax, is a tax imposed on India’s inter-state supply of goods and services. This tax system was implemented in India as part of the broader Goods and Services Tax (GST) reform on July 1, 2017.
GST represents a unified tax structure that replaced numerous indirect taxes previously imposed by central and state governments. Among the components of GST, IGST pertains explicitly to exchanges involving the supply of goods and services between distinct states or Union Territories within India.
Introduction to IGST – What it is and Full form of IGST
IGST also known as Integrated Goods and Services Tax, is a component of India’s Goods and Services Tax (GST) system. It is applied to transactions involving the interstate movement of goods and services.
Components of GST
GST comprises three main components:
Central Goods and Services Tax (CGST),
State Goods and Services Tax (SGST), and
Integrated Goods and Services Tax (IGST)
Purpose of Implementing GST
The introduction of GST aimed to consolidate various indirect taxes into a single taxation system. This move aimed to simplify taxation procedures for suppliers and consumers, streamlining the indirect taxation process.
Taxation in India
India’s federal arrangement requires a sophisticated tax system because it involves multiple tiers of governance. Central and state governments have the authority to impose and collect taxes. Given this complexity, implementing a single tax category proved logistically challenging.
The Need for Multiple Tax Categories
To accommodate the diverse nature of transactions and taxation levels across different states, the GST system incorporates three tax categories: CGST, SGST, and IGST. Each category serves a specific purpose in aligning with the varying taxation requirements across states and regions.
GST rates Determination
- The GST rates in India are comprised of representatives from the central and state governments. The GST council convenes regularly to deliberate and finalize the tax rates applicable to various goods and services.
- Several factors influence the decision-making process for setting GST rates, including the fiscal requirements of both central and state governments, the potential impact on consumers, and the implications for businesses.
- Before deciding, the council solicits input from various stakeholders, such as industry associations, consumer advocacy groups, and tax professionals. GST rates are generally categorized into four tiers – 5%, 12%, 18%, and 28%.
- However, certain goods and services may be exempt from GST or subject to a reduced tax rate. The GST Council periodically reviews and adjusts these rates in response to evolving economic conditions and governmental priorities.
IGST Features
Facilitating Interstate Transactions and GST implementation:
IGST, known as Integrated Goods and Services Tax, aims to streamline the application of GST across Indian states. Operating on a “destination-based” tax model ensures that tax revenues are directed to the state where goods or services are ultimately consumed rather than their origin.
Aggregate percentage of CGST and SGST:
IGST is a combined percentage of Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). Essentially, IGST replaces the former Central Sales Tax (CST) burden from previous tax regimes.
Mandatory compliance for interstate trade:
All registered businesses engaged in interstate trade must adhere to IGST regulations, irrespective of their involvement in goods, services, exports, or imports.
Eligibility for input tax credit:
Businesses receiving goods or services subject to IGST can claim input tax credit by accurately matching tax payments with corresponding details on the GST common portal.
Revenue sharing between Central and State Governments:
Tax revenues collected as IGST are distributed evenly between the Central and State Governments, following transfer to the destination state, with a 50:50 split.
Varied tax rates:
IGST tax rates range from 5% to 28%, aligning with CGST and SGST rates applicable to various goods and services.
Differences in levy and exemptions:
While IGST shares similarities with CGST and SGST, there may be minor disparities in levy and exemptions. Businesses must carefully analyze both aspects for compliance.
Extent and Application of IGST
IGST applies to all interstate transactions, ensuring consistency across goods and services and various business types and delivery modes.
Examples include the movement of goods from Location A in State A to Consumer Site B in State B, remote service provision from State A to a customer firm in State B, purchasing goods from a warehouse in State A for consumption within State B, and the export or import shipping of goods/services to/from a foreign country.
IGST Calculation – Rates & Illustrations
IGST rates are determined by adding the applicable CGST and SGST rates already established for goods/services. Specific rules govern their utilization:
- The maximum rate cannot surpass 40%, with some exceptions.
- The same rate is applicable whether the transaction is business-to-business (B2B) or business-to-consumer (B2C).
- The GST council approves rates for goods & services.
IGST Refund Process
Exporters can seek a refund of the IGST paid on exports. To initiate the refund process, exporters need to submit a shipping bill and a GST invoice to the appropriate authorities. However, it’s important to note that the refund procedure is subject to specific conditions and timelines. Any inaccuracies or discrepancies may lead to delays or rejection of the refund request.
How are the CGST, SGST, and IGST implemented? (After Purpose of Implementing GST)
The implementation of Goods and Services Tax (GST) in India has transformed the way taxes are collected and managed. The GST is a destination-based tax that has replaced several indirect taxes, including Value Added Tax (VAT), Central Excise Duty, and Service Tax. GST is divided into three types: central GST (CGST), state GST (SGST), and integrated GST (IGST).
The Central Government is in charge of collecting CGST, whereas the State Government collects SGST on transactions conducted within their respective states. On the other hand, the Central Government collects IGST on transactions between states.
The establishment of GST has not only eased the tax collection procedure, but it has also resulted in national tax rate consistency.
Characteristics of IGST (after IGST Features)
The GST Act governs the IGST levies. According to the IGST Act, the Centre would levy IGST (CGST plus SGST) on all inter-state payments for taxable supplies. The Central Government will charge the tax, which will be allocated between the union and the states in accordance with Parliamentary legislation, mostly based on ideas by the Goods and Services Tax Council.
- The interstate demand for products and services is valid.
- It means that the consuming state receives the SGST component of the IGST Tax.
- Input Tax Credit chain transparency in interstate supplies is maintained.
- The former CST (Central Sales Tax) Act of 1956 was repealed.
- Integrated GST also applies to items and services imported into India. The underlying idea is that any conveyance of products or services during the importation of goods/services into the Union of India is considered an inter-state exchange or exchange supply and is therefore subject to IGST.
What is IGST different from CST? (After IGST Calculation – Rates & Illustrations)
Prior to the implementation of the GST Act in 2017, interstate sales of goods and services were subject to Central Sales Tax (CST), as stipulated by the CST Act of 1956.
Unlike GST, the state government of the state where the products or services originated is responsible for collecting CST revenue.
The key differences between the IGST and CST are shown in the table below:
| IGST Meaning | CST Meaning | |
| Application | The movement of products and services across state borders. | Interstate distribution of goods and services. |
| Who collects Taxes? | The central government collects an IGST tax. | The government of the state from where the goods or services originated. |
| Benefitting authority | A share of the revenue is split evenly between the central government and the state government of the state that uses the goods or services. | Tax revenues are retained by state governments. |
| Input tax claim | Input tax can be claimed against IGST, CGST, and SGST. | No input tax claim was permitted. |
Refund for IGST (Add in IGST Refund Process)
IGST refers to a tax applied on all interstate transfers of goods and services. A person or company may be able to obtain a refund of the GST they paid to the government under certain conditions.
A GST refund can be obtained in any of the following two scenarios:
Foreign visitors
Foreign travelers who are not Indian residents and have visited India for up to six months may be eligible for an IGST refund. They can seek a refund of the IGST they paid on any products or services purchased from Indian merchants while in the country.
Offsetting Previously Paid Tax
If a person or entity has already paid the applicable IGST under another tax title (in full or in part), they are eligible for a refund of the amount paid, i.e. refunds would be provided to taxpayers who paid SGST or CGST rather than IGST.
In such circumstances, citizens must submit a new deposit under the proper tax category.
For example, after paying the GST applicable to the sale of completed goods, a producer who has previously paid IGST on raw materials may request a refund of the same amount.
According to GST Rules, an exporter is not entitled to a GST refund if:
- They applied the duty drawback option to the CGST, SGST, and IGST. However, if they have used the drawback on basic customs duty, they may obtain a refund of IGST.
- They were able to purchase inputs at a 0.1% discount. Exports in such cases must be made using Letters of Undertaking (LUT) or bonds rather than paying IGST.
- They received feedback through the Advance Authorization program. Advance Authorization is an export incentive that allows duty-free imports of materials used to manufacture export-oriented products. The finished product must be exported again using a LUT or bond rather than paying IGST.
Also Read: Types of GST in India: CGST, SGST, and IGST
Conclusion
Integrated Goods and Services Tax (IGST) stands as a pivotal aspect within the realm of uniform indirect taxation. Its significance lies in fostering seamless movement of goods and services across state borders while ensuring equitable revenue distribution between the Central and State governments. To uphold compliance with IGST regulations, meticulous documentation, punctual tax remittances, and accurate matching of invoices are imperative. These measures collectively contribute to fostering a transparent and legally sound framework within the GST regime, facilitating smoother inter-state transactions and bolstering overall economic efficiency.
Frequently Asked Questions(FAQs)
Can IGST credits be utilized to pay SGST?
IGST credits are used first to settle SGST payments. SGST credits then cover any remaining tax liability for SGST.
Can IGST be offset against CGST?
According to GST regulations, IGST input credits are initially applied to offset IGST tax liabilities. Any surplus input tax credits can then be utilized to offset either CGST or SGST liabilities in any order.
How is IGST determined?
IGST is imposed on all imports into India and interstate supplies, calculated by adding the applicable customs duty to the value of imported goods. Thus, IGST is computed after incorporating both the value of imported goods and any relevant customs duties.
Can CGST credits be used to pay SGST?
CGST credits are solely applicable to CGST payments and can also be used for IGST payments. However, they cannot be utilized to offset SGST liabilities.
Can SGST credits be employed to offset CGST liabilities?
Answer: No, SGST input credits are primarily employed to offset SGST obligations. Any remaining input tax credits can be applied towards IGST payments, but they cannot be used to offset CGST liabilities.
