Understanding Interstate vs Intrastate GST in India

On July 1st, 2017, India introduced the Goods and Services Tax (GST), necessitating an understanding of interstate and intrastate GST to identify applicable taxes: IGST, CGST, or SGST. The difference between these GST types is based on the supplier's location and the place of supply. Here, we delve into the definitions and contrasts of interstate and intrastate GST as per GST law.

Interstate GST: Meaning and Application

Interstate supply refers to goods or services provided where the supplier resides in one state or Union Territory, but the place of supply lies in another. It includes transactions such as import/export or deals with SEZ and Export-oriented Units (EOU). The Central Government levies the Integrated GST (IGST) for these cross-state transactions.

When goods/services move between states, IGST is collected by the Central Government and allocated to the destination state. This revenue-sharing model ensures equitable tax distribution, alleviating the tax burden on businesses operating across multiple states.

Intrastate GST: Definition and Implications

Intrastate supplies occur when both the supplier and the place of supply are within the same state, thus attracting Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST)/Union Territory GST (UTGST). These taxes are jointly charged by state/UT and Central governments.

The intrastate GST rate is based on the nature of goods/services supplied, with vendors obligated to collect both CGST and SGST in transactions within a single state.

GST Rate Comparison with Examples

GST rates for interstate and intrastate supplies in India fall into slabs of 5%, 12%, 18%, and 28%, with special rates for certain products and exemptions for essential items. Let's explore GST calculations in practical scenarios.

Example of Interstate GST Rate Calculation:

If ABC Ltd. in Jaipur, Rajasthan, supplies phones worth Rs. 1,00,000 to Mumbai, Maharashtra, the supply is interstate. With the phones in the 18% GST slab, the Central Government levies IGST:

IGST Calculation: Rs. 1,00,000 * 18% = Rs. 18,000

ABC Ltd. collects Rs. 18,000 as IGST and remits it to the Central Government, which shares it with Maharashtra.

Note: Supplies to a SEZ unit within the same state (Rajasthan) still qualify as interstate.

Example of Intrastate GST Rate Calculation:

If ABC Ltd. supplies phones worth Rs. 2,00,000 to a Udaipur-based entity in Rajasthan, it's an intrastate transaction. The 18% GST rate is divided into 9% CGST and 9% SGST:

CGST/SGST Calculation: Rs. 2,00,000 * 18% = Rs. 36,000

Here, Rs. 18,000 goes to CGST and Rs. 18,000 to SGST.

ABC Ltd. collects Rs. 36,000 in total, submitting Rs. 18,000 each to the Central and Rajasthan Governments.

This CGST/SGST structure by both governments ensures the total rate matches the IGST, maintaining consistent total tax amounts across interstate and intrastate supplies despite differing levy methods.

Key Differences Between Interstate and Intrastate GST

The following points highlight differences between interstate and intrastate GST in India:

• Application: Interstate applies to inter-state or territorial supplies, while intrastate applies within-state.
• Levy: IGST by Central; CGST/SGST by central and state governments.
• Rate: IGST rates vary by goods/services; CGST/SGST rates are equally applied by goods/services.
• Destination: Interstate IGST is shared between the center and the destination state; intrastate SGST remains with the state.
• Place of Supply: Varies for interstate; same for intrastate.
• Input Tax Credit Utilization: Inter-utilization is possible only after IGST claims for intrastate supplies.

Ultimately, Interstate and Intrastate GST are differentiated by supplier location and supply place. Their primary difference is in the tax levying process.