What is IGST?
IGST is an integrated goods and service tax and is one of the most crucial and important sections for registered businesses and taxpayers under the GST norm. For any registered entity or individual on the GST portal, IGST is one of the top 3 GST’s they will come across.
The 3 types of goods and service tax that makes up the law are:
1. Central Goods and Service Tax
2. State Goods and Service Tax
3. Integrated Goods and Service Tax
Today we’re going to address everything you need to know about IGST. But before we delve into it further let’s discuss what is the difference between all the 3 components of GST.
What is SGST, CGST and IGST?
Since the introduction of GST in 2017, the dual form of taxation has been followed in the country. Through the dual form of taxation, the centre and the state would levy GST simultaneously on transactions that took place in the country. This gave rise to CGST and SGST as the centre and the state both are involved in transactions that take place in a particular state.
But many businesses take place not in one state, but in multiple states. This could be that the raw materials are produced in different states and assembled in another state or the goods are manufactured in one state but supplied to another state. Due to these interstate transactions on goods and services, it was difficult to figure out which state would be the one the levy GST. Hence, to make things easier for interstate goods and services, the IGST was introduced.
This means that when goods and services are produced, manufactured and supplied to the same state, they come under CGST and SGST. But when goods and services are exchanged between borders of different states, they come under IGST.
What is IGST and how is it charged?
Goods and Services that are transported between states, that is via interstate transactions, come under IGST. Also, IGST will be applied to goods and services on both occasions of
– Import to India
– Export from India
When goods and services are manufactured and transported in the same state, they come under CGST and SGST. So let’s say for example Big Tom Toys and Stores supply board games in the state of Maharashtra. The GST slab for board games currently is 28%. Hence, 14% of the GST will be paid to the centre while the remaining 14% will be paid to the state. This comes under the dual taxation policy.
14% = Central Goods and Service Tax
14% = State Goods and Service Tax
That is how a registered taxpayer has to input and pay their GST tax if they’re supplying to the state they’re registered in.
On the other hand, the situation is different in the case of IGST.
Going by the same example, Big Tom Toys and Stores supplies goods to the state of Maharashtra and Karnataka. Since they are involved in an interstate transaction, the GST paid by them comes under IGST. the entire 28% of their tax slab is paid under IGST.
Note: Under IGST there is no division of the tax paid. The entire sum is paid to the body governing IGST. Unlike CGST and SGST when the tax is divided here the full sum is paid.
28% = Integrated Goods and Service Tax
Taking mathematical formulas into the equation
IGST = CGST + SGST
Why was IGST introduced?
When in 2017, the central government introduced a new tax regime under the ‘One Nation, One Tax’ pretext, various tax heads such as Value Added Tax, Excise Tax etc. have been eliminated and all the goods and services came under the GST tax slab.
However, there were some discrepancies under the new tax regime, which did not clear whether interstate goods and import-export goods would be taxed under. According to the new tax regime, no state can levy any tax on goods and services that take place outside the state or in the course of the import of the goods, or export of the goods outside the territory of India. Due to this, a new GST rule had to be introduced, taking into account the interstate transactions.
This gave rise to Integrated Goods and Service Tax.
Who is paid under IGST?
Since multiple states come into contact during an interstate transaction, it’s difficult to pinpoint which is the state that should receive the tax. Hence, the centre is the controlling and governing body of IGST. In short, when you pay your goods and service tax under IGST, the tax goes to the centre directly.
Do states get any benefit under IGST?
Yes. From the above explanation, it may seem like since IGST is paid entirely to the centre, the states may be at the shorter end of the stick. However, that isn’t true. Once the registered taxpayer has filed their taxes on the GST portal under IGST, the centre will review the transactions and entries and then pass on the taxes to the state.
Note: Under IGST, the importing state gets the benefits of the accrued taxes.
That is, from our above example of Big Tom Toys and Stores, wherein the goods are supplied to the state of Karnataka, for that transaction Big Tom will file for taxes under IGST. After the centre has verified those transactions and has received the tax from the taxpayer, the central government will distribute the tax to the state government.
What determines whether the taxation comes under CGST, SGST or IGST?
The classification of whether goods come under CGST SGST and IGST is the location of where the goods and services are supplied to. This takes into consideration the location of the supplier and the location where the goods are supplied to, both. The classification for IGST is as follows:
- Supplied to two different states
- Supplied to two different union territories
- Supplied between state and union territory
- Import of goods till they cross the customs frontier
- Import of goods and service
- Export of goods and service
- Supply of goods and service to the Special Economic Zones (SEZs)
- Supply to international tourists
- Any other transactions of goods and services that do not come under the pretext of intrastate transactions
Such supplies of goods and services between states come under the classification of Integrated Goods and Service Tax.
FAQ about IGST
- Which goods and services are classified under IGST?
Goods and Services which are registered in one state and transported inter-state, between states, union territories come under the classification of IGST.
- Which is the governing body for IGST?
The centre or the central government is the governing body that looks over all the IGST transactions.
- Do states not get benefit under IGST?
No. Once the transactions have been confirmed by the governing body, the central government will pass on the tax benefit to the importing state of the goods and services for the transactions mentioned.
- Which is the state that gets the tax benefit under IGST?
The importing state of the goods and services is the state that will be passed on the tax benefit