What is IGST - Integrated Goods & Services Tax? Meaning & Full Form

Ever wondered how goods and services seamlessly move across state borders in India without creating a tax nightmare? The answer lies in Integrated GST (IGST). Designed to simplify interstate trade and eliminate multiple layers of taxation, Integrated GST ensures that businesses and consumers experience a smooth, unified tax system.

Whether you’re a business owner or a consumer, understanding IGST is essential. This guide breaks down the Integrated GST meaning, working, benefits, and key differences between IGST, CGST and SGST.

What is Integrated GST or IGST?

IGST stands for Integrated Goods and Services Tax. It is a core component of the GST framework that is designed for the interstate transfer of goods and services. What this means is that Integrated tax in GST is levied only on the movement of goods and services between two state boundaries.

Understanding GST and its Components

To better understand Integrated GST, it will be necessary to understand GST as a whole. GST or Goods and Services Tax is an indirect tax levied on the sale, manufacture, and consumption of goods and services.

Although GST is a tax collected at every stage of the supply chain, it is designed to allow businesses to claim credits for the taxes they have paid at earlier stages. This prevents the tax from cascading. Here are the key components of the GST:

• Integrated GST (IGST): GST charged by the central government on inter-state supplies, as well as imports and exports.
• Central GST (CGST): The GST imposed on intra-state (i.e., within a state) supplies and collected by the central government.
• State GST (SGST): GST charged by the state government for intra-state supplies.
• Union Territory GST (UTGST): Same rules apply as for SGST, but for union territories.

How Does Integrated GST Work?

As a destination-based approach, integrated GST imposes the tax at the point of final consumption instead of the manufacturing location. Here’s the step-by-step process of how Integrated GST works:

• Interstate Supply: When goods are being transported from one State to another, the first supplier will charge IGST on the invoice.
• Collection and Apportionment: The central government collects IGST, but it takes the apportioned share of tax revenue. The destination state gets its share equivalent to the SGST, while the centre gets the CGST portion.
• Input Tax Credit: Businesses only pay for the net amount of IGST, CGST, and SGST after considering their Input Tax Credit (ITC). It makes tax flexible and enables the GST system to have a smooth credit flow.

Suppose a manufacturer in New Delhi sells the retailer in Mumbai electronics costing ₹1,00,000. Now, assume the GST rate was 18%, the IGST charged would be ₹18,000. The total amount that a retailer will pay is ₹1,18,000. The Mumbai retailer, selling items for ₹20,000 to carriers, can avail themselves of the ITC on this amount subsequently. This ensures that the tax is effectively paid only once and avoids the cascading effect.

How is IGST Calculated?

Here is how the Integrated tax in GST is calculated:

• IGST = Value of Supply x IGST Rate

Where,

• Value of Supply: This is the value of goods or services supplied.
• IGST Rate: The rate of IGST applied to goods or services is different according to the nature of goods or services.

Difference Between IGST, CGST, and SGST

Here are the key differences between IGST, CGST and SGST:

For example, a Delhi-based company selling goods to a Delhi-based consumer will be charged both CGST and SGST (for instance, 9% CGST + 9% SGST = 18%). When that same business makes a sale in Mumbai to a customer, it will only apply 18% IGST.

Benefits of Integrated GST

Here are the key benefits of Integrated GST you must know:

• Streamlined Tax process: It replaces the various interstate taxes to reduce the paperwork and compliance costs.
• Boost in Trade: It allows businesses to boost trade by expanding across states.
• Reduces Tax Evasion: The GSTN (GST Network) and the centralised supply chain bring an opportunity to minimise fraud.
• Lowering Consumer Costs: Lower effective taxes mean lower consumer prices.

Conclusion

Integrated GST (IGST) is one of the central pillars of India's GST system. It helps ensure that trade between different states is smooth, efficient, and fair. By centralising the collection of tax and sharing the collection of revenue with states, IGST makes compliance easy, both for businesses and for consumers alike.

Frequently Asked Questions 

What is the IGST full form?

IGST stands for Integrated Goods and Services Tax. It is a form of GST that the central government applies to the supply of goods and services that cross state borders in India.

When is IGST applicable?

IGST applies to all interstate supplies of goods and services, i.e., when goods or services are sold by one state to another state.

Can I avail the input tax credit on IGST?

Yes. Businesses may claim Input Tax Credit (ITC) of IGST, and they can use this ITC to offset IGST, CGST or SGST liabilities. By doing this, taxes paid earlier in the supply chain are protected from collapsing.

What is the difference between IGST and CGST?

CGST is the tax that the central government collects on intra-state sale of goods and services, whereas IGST is collected on interstate transactions.

Who pays and collects IGST?

The IGST is charged on the invoice and paid to the central government by the supplier of the goods or services. The centre and the state where the goods or services are used then divide the revenue.