IGST stands for Integrated Goods and Services Tax. IGST is one of the three components of Goods and Services Tax. IGS tax is levied when there is an inter-state transfer of goods and services.
The three components of GST are:-
When GST was introduced by the central government in July 2017, the idea was to subsume all the various indirect taxes into one. The reason to implement GST was to simplify the indirect taxation system for the supply and demand side. India is a federal country and we have many levels of governance. In terms of finance, both central and state governments are permitted to collect and levy taxes.
For the same reason, it was logistically difficult to have just one simple tax category. Therefore we have three categories to accommodate for the different levels of transactions and taxation.
CGST and SGST are used for intra state transfer of goods and services. Intrastate means within the same state. For example: Movement of goods from Delhi and within Delhi will attract CGST and SGST.
Integrated Goods and Service Tax or IGST numerically equals= CGST+SGST. The movement of goods from New Delhi to Agra will attract IGST.
You may have a few doubts:-
We will answer all these questions in the next few segments.
Let’s look at the formula for IGST Tax once again.
IGST = CGST + SGST
But this is just a numerical game. It does not mean that IGST is more expensive.
Let’s take the example of cashew nuts.
Interstate: Cashew nuts attract an IGST of 5% in case of interstate transfer. So if cashew nuts are being sold from Delhi to Agra, traders in Agra will pay the IGST, traders in Delhi will collect it and they pay it to the government
Intrastate: In case of transfer within the same state, it will attract a CGST of 2.5% that goes to the central government and SGST of 2.5% that goes to the central government. In total, the tax incidence is 5%.
So, CGST and SGST are two halves of the IGST. This goes the same for all the products.
Let’s have a look at an IGST example.
Say there is a registered trader, Mukesh, based out of Ahmedabad who sold goods to Ajay, a trader based out of Mumbai for Rs 20 lakh, and Ajay further sold them to Anita, a registered trader in Lucknow for Rs 25 lakh.
Mukesh to Ajay
Mukesh will collect the IGST on Rs 20 lakh from Ajay.
Say the IGST tax rate applicable here was 5%.
Ajay’s payment to Mukesh is 21 lakh inclusive of GST this extra Rs 1 lakh can be claimed in the next stage.
Ajay sells these goods again to Anita at 5%. Ajay will collect a total of Rs 22,05,500. Out of which, he will have to pay Rs 1,05,000 to the government which he received as tax.
However, Ajay can claim the input tax credit on this amount.
Remember in Stage 1, Ajay had paid Rs 1 lakh as IGST to Mukesh. He can set this amount off with Rs 1.05 lakh and pay Rs 5,000 to the government.
One thing to remember in IGST is that the importing state gets the accrued benefit of taxes.
So, in the IGST example, for the transaction between Mukesh and Ajay, the tax will be accrued to Maharashtra finally. This is when the central government will distribute the tax to the state after receiving it from the traders. So after Mukesh submits the total IGST tax with the central government, the state’s share will be passed on to the Maharashtra state government.
Similarly, for the trade between Ajay and Anita, Uttar Pradesh will get the accrued benefit. After Ajay files the tax he collected from the transaction with the central government, it is Uttar Pradesh that will receive its share from the total IGST paid by Ajay.
Integrated Goods and Services Tax collected at various stages by the traders is paid to the central government first, after which, the central government distributes or shares the state government’s share with them according to the rates fixed by the authorities.
This has helped Ajay to stay away from double taxation.
Therefore, in simple words, IGST is paid by the receiving person, collected by the sender, given to the central government, and distributed between central and state governments.
There are two important points you need to remember regarding IGST:
With the onboarding of the Goods and Services tax regime in the year 2017 and the exit of indirect taxes the government had also put in place a GST Council. This council looks after setting the rates in consultation with the government, grievances of traders and customers, in short, it takes care of the entire GST universe.
The GST council conducts several meetings where it shares with the media important decisions that have been taken. It is in these review meetings that the GST council announces a change in GST rates if any. The rates are fixed by the council in consultation with the government and relevant ministries depending on the product.
You can track the refund status through the online portal.
IGST is a destination-based tax.
The IGST Act will control the IGST, which is a tax levied on all inter-state supplies of goods and/or services under GST. In both circumstances of import into India and export from India, IGST will be levied on any supply of goods and/or services.
The primary distinction between GST and IGST is that GST is a percentage of income tax that must be paid to the ‘deductor’ when a profit or loss is earned in the sale of goods and services. IGST, on the other hand, is a sort of GST that must be paid by the supplier in the case of an interstate supply of goods and services.
The Act is known as the Integrated Goods and Services Tax Act, 2017 (IGST full form), and it was passed in order to command, collect, and distribute IGST in India. Furthermore, SGST is an abbreviation for state goods and services tax.