Earlier, the tax system was complex and multi-layered. There were several types of taxes that were levied on the goods and services such as excise, service tax, VAT, Octroi, Entertainment tax, tax on lottery, luxury tax, Purchase tax, etc. With the introduction of GST (Goods & Services Tax), the tax system was brought under a single umbrella called Goods and Services Tax (GST).
Under GST, there are three main components CGST (Central Goods and Services Tax), SGST (State Goods and Services Tax), and IGST (Integrated Goods and Services Tax). These components are divided on the bases of location as CGST is levied when the transaction has occurred within the state, and SGST is levied when the transaction has occurred between two states. Lastly, IGST is implemented when there are interstate transactions of goods and services.
What is Integrated GST?
- IGST = CGST + SGST
Integrated GST or Integrated goods and services tax or IGST is one of the components of GST and is levied under the IGST Act 2017. Under this act, the center has the authority to levy IGST (CGST + SGST) on the transactions of goods and services between the two states. If you are a seller who is selling goods to another state, you will have to pay IGST. Goods and services or both imported into Indian territory supplied to or from SEZs exported or supplied made to international tourists fall under the category of IGST.
IGST vs CGST vs SGST/UTGST
| Key difference |
IGST | CGST | SGST/UTGST |
| Applicable |
Inter-state supply of goods and services or both | Intra-state supply of goods and services or both |
Intra-state supply of goods and services or both |
| Collective Authority | Central Government | Central Government | State Government/Union Territory government |
| Input tax adjustment | Input tax credit of IGST can be used against either CGST, SGST, or IGST. | An Input tax credit of CGST can be used against CGST or IGST, but not against SGST | Input tax credit of SGST can be used against SGST or IGST, but not against CGST |
Let us understand IGST using an example
Mukesh is a registered trader who is currently located in Mumbai and has sold goods worth Rs.40 Lakh to Suresh who is from Mumbai. Later, Suresh sold the goods to Rajesh who is a registered trader in Kolkata for Rs. 45 Lakh.
- Mukesh to Suresh
Mukesh will collect the IGST on Rs.40 Lakh from Suresh
The IGST tax rate applicable was 10%
Suresh will pay Mukesh Rs.44,00,000, additional GST of Rs.4,00,000 will be added to the total payment to Mukesh. An extra ?4,00,000 can be claimed in the next stage.
- Suresh to Rajesh
Suresh sells these goods to Rajesh at 10%. Suresh will receive a total sum of Rs. 48,40,000. 4,40,000 will be paid as tax to the government by Suresh which he later can claim as an input tax credit.
Suresh had already paid Rs.4 Lakh as IGST to Mukesh. He can set the amount off with Rs.4,40,000 and pay Rs.40,000 to the government.
How to Check the IGST Refund Status?
You can check your IGST refund status by following the below-mentioned steps
- Step 1: Visit the GST website and log in to the GST portal.
- Step 2: Fill out the required information.
- Step 3: Go to the service section on the same page and click on the refunds.
- Step 4: From the drop-down menu bar, select the track status option.
- Step 5: Select the financial year and month and click on the search button.
Why there is a Split Between SGST, CGST, and IGST?
The Indian Constitution grants both the centre and the states the authority to impose and collect taxes. The amount collected through taxation in the form of GST contributes towards various development activities and nation-building.
The concept of "One Nation, One Tax" is ensured by the GST structure (SGST, CGST, and IGST), which is collected as per the norms laid out by the Indian government.
What Determines if CGST, SGST, or IGST is Applicable
To determine if the CGST, SGST, and IGST apply to a product or service, you must specify if the transaction is intrastate or interstate.
- Intrastate: The supply of goods and services within the geographical boundaries of a state where the buyer and the seller are from the same state. In this transaction, the seller must collect both CGST and SGST from the buyer and deposit the funds with the central as well as the state government.
- Interstate: The supply of goods and services from one state to another is known as interstate supply. The GST Act defines an interstate supply as one where the supplier's location and the customer's place of supply are in:
- Two different states
- Two different union territories
- Union territory and state
Additionally, the seller must collect the IGST in an interstate transaction. If the import or export of goods and services are made to or by an SEZ (Special Economic Zone) unit, it is assumed to be interstate.
Which State will Receive the Tax Revenue?
The central and state governments split the tax income obtained from the IGST. When a transaction happens between two states or a state and a union territory (and vice versa), the seller collects the IGST from the buyer, which is shared among both state and central governments.
For example, if an interstate transaction occurs between a dealer in Maharashtra and a retailer in Kerala, the IGST will be shared between the central government and the state government of Kerala. The central government will receive 80% of the IGST and 20% will be received by the state government.
Conclusion
This blog sheds light on important concepts related to IGST such as what is integrated GST, IGST full form, IGST meaning, etc. The introduction of IGST has simplified the taxation on goods and services in India. There are numerous advantages of IGST such as tax neutrality, efficient management, uniformity of tax rates, an online platform to check all your refunds and returns, etc.
Frequently Asked Questions
- What is IGST give an example.
IGST is levied when there are interstate transactions of goods and services. If you are a seller who is selling goods to another state, you will have to pay IGST. For example, Rahul is a seller who is selling goods from Maharashtra to a buyer in another state Karnataka. In this case, the buyer will have to pay IGST on the transaction of goods and services.
IGST = CGST + SGST
- Why is IGST charged?
IGST is charged to keep track of the inter-state transactions of goods and services.
- Is it mandatory to pay IGST?
In both cases of export and import of goods and services, IGST will be applicable.
- Can IGST be refunded?
At the end of any tax period, a person who has registered under GST can claim a refund, if applicable.
- Who will collect IGST?
The central government will collect IGST.
- What is the difference between GST and IGST?
The Goods and Services Tax (GST) was imposed by the Indian government to bring uniformity within the country’s taxation system. It is comprised of the Central Goods and Services Tax (CGST) and the State Goods and Services Tax (SGST). However, the supply of goods and services outside the state is known as integrated GST or IGST, meaning it is collected by the central government and is also applicable to imports.