Integrated Goods and Services Tax (IGST)

Introduction

The Full form of IGST is Integrated Goods and Services Tax, a tax levied on India's inter-state supply of goods and services. It was introduced in India on July 1, 2017, as part of the Goods and Services Tax (GST) reform. 

GST is a comprehensive tax system that replaced many indirect taxes that were levied by the central and state governments. IGST is one of the components of GST and is levied on the supply of goods and services that occur between different states or Union Territories of India.
 

What is Integrated Goods and Services Tax (IGST)?

When a transaction involves the movement of goods or services from one state to another, the tax collected is called IGST. It applies to all inter-state supplies of goods and services and is collected by the central government, which then distributes it to the respective states or UTs. 

The introduction of IGST aimed to simplify the tax system by removing the cascading effect of taxes, bringing transparency to the taxation system, and ensuring that tax revenues are shared fairly and equitably between the centre and the state governments. It also aimed to create a common market by removing inter-state trade barriers and promoting the free flow of goods and services across India.
 

How are CGST, SGST and IGST implemented?

Implementing Goods and Services Tax (GST) in India has revolutionised how taxes are collected and administered. The GST is a destination-based tax that replaced various indirect taxes such as Value Added Tax (VAT), Central Excise Duty, and Service Tax. GST is divided into three types of taxes - Central GST (CGST), State GST (SGST), and Integrated GST (IGST).

The Central Government is responsible for collecting CGST, while the State Government collects SGST on transactions made within their respective states. On the other hand, IGST is collected by the Central Government for transactions between different states. 

The implementation of GST has not only simplified the tax collection process but has also brought consistency in tax rates across the country.
 

CGST and SGS?

CGST is levied by the central government on intra-state (within the same state) supplies of goods and services. The rate of CGST is set by the central government and collected by the state government.

SGST is charged by the state government on intra-state (within the same state) supplies of goods and services. The rate of SGST is set by the state government and collected by the same state government.
 

What is IGST?

●    The IGST Act governs the collection of tax on the sale of all inter-state goods and services in India, which the Central Government levies.
●    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 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 say that ASG Ltd., a manufacturing company based in Tamil Nadu, sells goods worth Rs. 10 lakhs to SBM Group, a dealer in Karnataka. In this scenario, 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 lakh 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. Since the transaction between the manufacturer in Tamil Nadu and the dealer in Karnataka was an inter-state transaction, the IGST collected in this stage will be shared between the central and state governments of Karnataka. 

Similarly, since the transaction between the dealer in Karnataka and the retailer in Maharashtra was also an inter-state transaction, the IGST collected in this stage will be shared between the central and state governments of Maharashtra.

So, in this example, the tax revenue collected through IGST will be distributed as follows:

●    For the transaction between the Tamil Nadu manufacturer and the Karnataka dealer, the central government will receive Rs. 1,44,000 (80% of IGST) and the state government of Karnataka will receive Rs. 36,000 (20% of IGST).
●    For the transaction between the dealer in Karnataka and the retailer in Maharashtra, the central government will receive Rs. 2,16,000 (80% of IGST) and the state government of Maharashtra will receive Rs. 54,000 (20% of IGST).

Overall, IGST ensures that tax revenue is distributed fairly between the central and state governments and helps prevent double taxation on inter-state transactions.
 

Things to keep in mind about IGST? (20 - 50 pointers)

Here are some essential takeaways to remember concerning 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
●    IGST can be claimed as an input tax credit by eligible businesses
 

How are the GST rates fixed?

The GST rates in India are fixed by the GST Council, a body comprising representatives from the central and state governments. The council meets periodically to decide on the rates of tax that will be levied on various goods and services.

The GST rates are decided based on several factors, including the revenue requirements of the central and state governments, the impact on consumers, and the impact on businesses. 

Before deciding, the council considers the feedback from various stakeholders, including industry associations, consumer groups, and tax experts. The rates of GST are broadly divided into four categories - 5%, 12%, 18% and 28%. 

However, some certain goods and services are exempt from GST or are taxed at a lower rate. The GST rates are periodically reviewed and revised by the council based on changing economic conditions and the needs of the government.
 

Refund of IGST?

IGST paid on exports can be claimed as a refund. To claim the refund, the exporter 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 result in delays or rejections.