Revised: Integrated Goods and Services Tax (IGST)
Revised: Integrated Goods and Services Tax (IGST)
Mar 22, 2024
15 Mins
Introduction
The Integrated Goods and Services Tax (IGST) is a tax imposed on the inter-state supply of goods and services in India. It was introduced on July 1, 2017, as part of the Goods and Services Tax (GST) reform.
What is Integrated Goods and Services Tax (IGST)?
When goods or services are exchanged between different states, the resulting tax is known as IGST. It applies to all inter-state supplies and is collected by the central government, which then distributes it to the respective states or Union Territories of India.
The introduction of IGST aimed to simplify the tax system by eliminating the cascading effect of taxes. It also sought to bring transparency to the taxation system and ensure fair and equitable sharing of tax revenues between the central and state governments. Additionally, it aimed to create a common market by removing barriers to inter-state trade and promoting the free flow of goods and services across India.
How are CGST, SGST, and IGST implemented?
The implementation of Goods and Services Tax (GST) in India has revolutionized the collection and administration of taxes. GST, a destination-based tax, replaced various indirect taxes such as Value Added Tax (VAT), Central Excise Duty, and Service Tax. GST consists of three types of taxes - Central GST (CGST), State GST (SGST), and Integrated GST (IGST).
CGST is levied by the central government on intra-state supplies, while SGST is charged by the state government on intra-state supplies. As for IGST, it is collected by the central government for transactions between different states.
The implementation of GST has not only simplified the tax collection process but also brought consistency to tax rates across the country.
What is IGST?
- The IGST Act governs the collection of tax on the sale of all inter-state goods and services in India, levied by the Central Government.
- This includes both imported and exported goods and services.
- The tax levied on exported goods and services is zero-rated.
- The taxes collected are shared between the Central Government and the relevant State Government.
Features of IGST
Here are some key features of IGST:
- Levied on inter-state supplies of goods and services
- Combines CGST and SGST into a single tax
- Collected by the central government and distributed to states
- Helps remove inter-state trade barriers and create a common market
- Promotes transparency, equity, and efficiency in the tax system
- Aims to simplify the tax structure and boost economic growth
IGST Explained: An Example
Let's consider an example: ASG Ltd., a manufacturing company based in Tamil Nadu, sells goods worth Rs. 10 lakhs to SBM Group, a dealer in Karnataka. In this case, ASG Ltd. would need to charge IGST on the sale of goods as it is an inter-state transaction.
Here's how the calculation of IGST would work:
The rate of IGST is determined by adding the rates of CGST and SGST.
So, the formula is: IGST rate = CGST rate + SGST rate
Suppose the CGST rate is 9%, and the SGST rate is also 9%. Then the rate of IGST would be 18%.
To calculate the IGST amount, we need to multiply the value of goods by the IGST rate. In this case, the value of goods is Rs. 1,00,000, and the IGST rate is 18%. So, the IGST amount would be:
IGST = Value of goods x IGST rate
= 10,00,000 x 18%
= Rs. 1,80,000
Now, let's say the dealer SBM Group in Karnataka further sells these components to a retailer in Maharashtra for Rs. 15 lakhs. Again, the applicable IGST rate is 18%. So, the IGST paid by the retailer to the dealer will be Rs. 2,70,000 (18% of Rs. 15 lakhs).
However, SBM Group can claim the input tax credit on this amount as they already paid Rs. 1,80,000 to the manufacturer. They can set this amount off with Rs. 2,70,000 and pay Rs. 90,000 to the government.
Which state will receive the tax revenue?
The tax revenue collected through IGST will be shared between the central and state governments. In the aforementioned example, the IGST collected between the Tamil Nadu manufacturer and the Karnataka dealer will be shared between the central and state governments of Karnataka. Similarly, the IGST collected between the dealer in Karnataka and the retailer in Maharashtra will be shared between the central and state governments of Maharashtra.
Overall, IGST ensures fair distribution of tax revenue between the central and state governments and helps prevent double taxation on inter-state transactions.
Things to keep in mind about IGST
Here are some important takeaways to remember about IGST:
- The exporting state receives the accrued benefit of IGST.
- Proper documentation and adherence to timelines are important for IGST compliance.
- Refunds of IGST are available in certain cases, such as international exports.
- Eligible businesses can claim IGST as an input tax credit.
How are the GST rates fixed?
The GST rates in India are fixed by the GST Council, consisting of representatives from the central and state governments. The council meets periodically to decide on the tax rates for various goods and services.
The GST rates are determined based on factors such as the revenue requirements of the central and state governments, the impact on consumers, and the impact on businesses. Feedback from industry associations, consumer groups, and tax experts is considered before finalizing the rates. GST rates are broadly categorized into four: 5%, 12%, 18%, and 28%.
However, certain goods and services are exempt from GST or taxed at a lower rate. The rates are periodically reviewed and revised by the council to adapt to changing economic conditions and government needs.
Refund of IGST
IGST paid on exports can be claimed as a refund. To claim the refund, exporters must file a shipping bill and a GST invoice with the relevant authorities. The refund process is subject to certain conditions and timelines, and any errors or discrepancies can lead to delays or rejections.
Introduction
The Integrated Goods and Services Tax (IGST) is a tax imposed on the inter-state supply of goods and services in India. It was introduced on July 1, 2017, as part of the Goods and Services Tax (GST) reform.
What is Integrated Goods and Services Tax (IGST)?
When goods or services are exchanged between different states, the resulting tax is known as IGST. It applies to all inter-state supplies and is collected by the central government, which then distributes it to the respective states or Union Territories of India.
The introduction of IGST aimed to simplify the tax system by eliminating the cascading effect of taxes. It also sought to bring transparency to the taxation system and ensure fair and equitable sharing of tax revenues between the central and state governments. Additionally, it aimed to create a common market by removing barriers to inter-state trade and promoting the free flow of goods and services across India.
How are CGST, SGST, and IGST implemented?
The implementation of Goods and Services Tax (GST) in India has revolutionized the collection and administration of taxes. GST, a destination-based tax, replaced various indirect taxes such as Value Added Tax (VAT), Central Excise Duty, and Service Tax. GST consists of three types of taxes - Central GST (CGST), State GST (SGST), and Integrated GST (IGST).
CGST is levied by the central government on intra-state supplies, while SGST is charged by the state government on intra-state supplies. As for IGST, it is collected by the central government for transactions between different states.
The implementation of GST has not only simplified the tax collection process but also brought consistency to tax rates across the country.
What is IGST?
- The IGST Act governs the collection of tax on the sale of all inter-state goods and services in India, levied by the Central Government.
- This includes both imported and exported goods and services.
- The tax levied on exported goods and services is zero-rated.
- The taxes collected are shared between the Central Government and the relevant State Government.
Features of IGST
Here are some key features of IGST:
- Levied on inter-state supplies of goods and services
- Combines CGST and SGST into a single tax
- Collected by the central government and distributed to states
- Helps remove inter-state trade barriers and create a common market
- Promotes transparency, equity, and efficiency in the tax system
- Aims to simplify the tax structure and boost economic growth
IGST Explained: An Example
Let's consider an example: ASG Ltd., a manufacturing company based in Tamil Nadu, sells goods worth Rs. 10 lakhs to SBM Group, a dealer in Karnataka. In this case, ASG Ltd. would need to charge IGST on the sale of goods as it is an inter-state transaction.
Here's how the calculation of IGST would work:
The rate of IGST is determined by adding the rates of CGST and SGST.
So, the formula is: IGST rate = CGST rate + SGST rate
Suppose the CGST rate is 9%, and the SGST rate is also 9%. Then the rate of IGST would be 18%.
To calculate the IGST amount, we need to multiply the value of goods by the IGST rate. In this case, the value of goods is Rs. 1,00,000, and the IGST rate is 18%. So, the IGST amount would be:
IGST = Value of goods x IGST rate
= 10,00,000 x 18%
= Rs. 1,80,000
Now, let's say the dealer SBM Group in Karnataka further sells these components to a retailer in Maharashtra for Rs. 15 lakhs. Again, the applicable IGST rate is 18%. So, the IGST paid by the retailer to the dealer will be Rs. 2,70,000 (18% of Rs. 15 lakhs).
However, SBM Group can claim the input tax credit on this amount as they already paid Rs. 1,80,000 to the manufacturer. They can set this amount off with Rs. 2,70,000 and pay Rs. 90,000 to the government.
Which state will receive the tax revenue?
The tax revenue collected through IGST will be shared between the central and state governments. In the aforementioned example, the IGST collected between the Tamil Nadu manufacturer and the Karnataka dealer will be shared between the central and state governments of Karnataka. Similarly, the IGST collected between the dealer in Karnataka and the retailer in Maharashtra will be shared between the central and state governments of Maharashtra.
Overall, IGST ensures fair distribution of tax revenue between the central and state governments and helps prevent double taxation on inter-state transactions.
Things to keep in mind about IGST
Here are some important takeaways to remember about IGST:
- The exporting state receives the accrued benefit of IGST.
- Proper documentation and adherence to timelines are important for IGST compliance.
- Refunds of IGST are available in certain cases, such as international exports.
- Eligible businesses can claim IGST as an input tax credit.
How are the GST rates fixed?
The GST rates in India are fixed by the GST Council, consisting of representatives from the central and state governments. The council meets periodically to decide on the tax rates for various goods and services.
The GST rates are determined based on factors such as the revenue requirements of the central and state governments, the impact on consumers, and the impact on businesses. Feedback from industry associations, consumer groups, and tax experts is considered before finalizing the rates. GST rates are broadly categorized into four: 5%, 12%, 18%, and 28%.
However, certain goods and services are exempt from GST or taxed at a lower rate. The rates are periodically reviewed and revised by the council to adapt to changing economic conditions and government needs.
Refund of IGST
IGST paid on exports can be claimed as a refund. To claim the refund, exporters must file a shipping bill and a GST invoice with the relevant authorities. The refund process is subject to certain conditions and timelines, and any errors or discrepancies can lead to delays or rejections.
Author
Pluto Team
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