IGST: Meaning, Full Form, Features, and Examples

Explore IGST: Definition, features, examples, GST rate fixing, CGST vs SGST vs IGST differences, and refund process explained clearly.
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4 min read
23 July 2025

Integrated Goods and Services Tax (IGST) is an important part of India’s GST system. It helps make the process of taxing goods and services between different states smoother and easier to manage.

This guide explains the main purpose of IGST, including:

  • When it applies (mainly for inter-state transactions)
  • How it ensures the same tax rate across the country
  • How businesses can claim input tax credit under IGST

You’ll also understand how IGST is different from CGST and SGST, how GST rates are set by the GST Council, and how the IGST refund process works.

Whether you run a business or are just curious to learn more, understanding IGST is useful for staying compliant with tax rules and taking advantage of benefits like tax credits and smoother trade between states.

This simple guide includes easy examples and practical tips to help you understand IGST better. If you're also planning to expand operations, don’t forget to check your business loan eligibility for convenient financing options.

What is IGST?

IGST stands for Integrated Goods and Services Tax. It is an essential component of India's Goods and Services Tax (GST) system, designed to regulate the taxation of inter-state transactions of goods and services. Unlike CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax), which apply to intra-state transactions, IGST (Integrated Goods and Services Tax) applies to transactions that involve the movement of goods or services between two different states.

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Features of IGST

  1. Applicability to inter-state transactions: IGST is applicable to all transactions involving the supply of goods and services between two states. This includes union territories. It ensures uniformity in taxation for inter-state movements, eliminating the complexities of multiple state taxes.
  2. Uniform rate: The GST Council fixes the IGST rate, which then remains consistent across all states. This prevents the ambiguity of varying tax rates for inter-state transactions.
  3. Input tax credit (ITC): Businesses paying IGST on their purchases during inter-state transactions are eligible for claiming the input tax. This allows them to set off the IGST paid against their final tax liability, promoting a seamless tax credit mechanism.
  4. Destination principle: Under IGST, the tax revenue generated from an inter-state transaction goes to the state where the goods or services are ultimately consumed (destination state). This ensures that the taxing authority of the destination state benefits from the tax revenue.

Check your pre-approved business loan offer before making new interstate transactions, especially when managing working capital.

Things to keep in mind about IGST

  1. Billing of IGST: In the case of an inter-state transaction, the seller must bill IGST on the invoice. The buyer then pays this amount, and the seller remits it to the central government.
  2. GSTIN requirements: Both the seller and the buyer involved in an inter-state transaction must have a valid GSTIN (Goods and Services Tax Identification Number) for seamless compliance with IGST regulations.
  3. Jurisdiction: The jurisdiction for IGST lies with the central government. It facilitates uniform administration and collection of taxes on inter-state supplies.
  4. Import and export: IGST also applies to goods and services imported into India or exported out of the country. The tax treatment differs depending on whether it is an import or export transaction.

IGST Applicability

IGST (Integrated Goods and Services Tax) applies to all goods and services supplied from one state to another in India. When goods or services move across state borders, IGST is charged.

When does IGST apply?

IGST covers four main types of supply:

  1. Interstate Supplies:
    When goods or services are sent from one state or union territory to another, IGST is charged. The seller adds IGST to the bill and pays it to the Central Government.
  2. Imports and Exports:
    • For goods and services brought into India (imports), IGST is charged along with customs duties by the Central Government.
    • For goods and services sent out of India (exports), IGST is zero-rated. This means exporters either pay IGST and claim it back as a refund after submitting shipping documents, or they don’t pay IGST at all by providing a Letter of Undertaking (LUT) or bond. This makes exports effectively free from IGST.
  3. Supplies to and from Special Economic Zones (SEZs):
    SEZs are treated as outside India’s customs area. So, IGST applies to goods and services supplied to or from SEZs, even if both places are in the same state.
  4. Supplies to and from Export-Oriented Units (EOUs):
    EOUs are factories that export all their products. Like SEZs, supplies to and from EOUs also attract IGST.

Example:
A company in Chennai, Tamil Nadu, sells laptops to a customer in Mumbai, Maharashtra. Since the goods move from one state to another, IGST applies on the total value of the laptops. But if the company sells laptops only within Tamil Nadu, IGST does not apply.

IGST Rate Structure

The GST Council has introduced major changes to GST rates starting from 22 September 2025. The old four-rate system (5%, 12%, 18%, and 28%) has been simplified into two main rates: 5% and 18%. Additionally, there is a special 40% rate for certain luxury and sin goods, while essential items are taxed at 0%.

Type of Items

IGST Rate

Examples

Exempt / Essential Goods (0%)

0% (GST-Free)

Fresh milk, UHT milk, packaged paneer, curd, life and health insurance premiums, educational items like maps, notebooks, pencils.

Merit Rate (Essentials)

5%

Everyday essentials like packaged butter, ghee, cheese, snacks (namkeen), pasta; most medicines and medical devices; affordable clothes and shoes; hotel stays up to ₹7,500 per day.

Standard Rate (Most Goods and Services)

18%

Most products and services, such as air conditioners, TVs, refrigerators, small cars, cement, mobile phones, and capital goods. The old 12% and 28% rates have been removed.

Demerit/Luxury/Sin Goods

40%

Luxury items like premium cars and motorcycles over 350cc, sin goods such as fizzy drinks, online gaming, and betting.


Example for IGST with calculation

Let’s look at an example of how IGST works:

Mukesh, a registered trader in Ahmedabad, sells goods worth Rs. 20 lakh to Ajay, a trader in Mumbai. Ajay then sells the same goods to Anita, a registered trader in Lucknow, for Rs. 25 lakh.

Stage 1: Mukesh sells to Ajay

  • Mukesh charges 5% IGST on Rs. 20 lakh.
  • That’s Rs. 1 lakh in tax, so Ajay pays a total of Rs. 21 lakh (Rs. 20 lakh + Rs. 1 lakh IGST).
  • Mukesh pays this Rs. 1 lakh to the government.
  • Ajay can later claim this Rs. 1 lakh as Input Tax Credit (ITC).

Stage 2: Ajay sells to Anita

  • Ajay sells the goods for Rs. 25 lakh and again charges 5% IGST, which is Rs. 1,25,000.
  • So Anita pays Rs. 26,25,000 in total.
  • Ajay now needs to pay Rs. 1,25,000 IGST to the government.

But here's the key part:

  • Ajay already paid Rs. 1 lakh IGST in Stage 1 (to Mukesh).
  • He can use that Rs. 1 lakh as ITC and just pay the balance:

Rs. 1,25,000 − Rs. 1,00,000 = Rs. 25,000 payable to the government.

This way, the IGST system ensures tax is only paid on the value added at each stage, while allowing registered traders to claim credit for the tax already paid earlier.

Difference between CGST, SGST, and IGST

If you want to understand how GST works in India, it’s important to know the difference between CGST, SGST, and IGST. This helps to decide which government gets the tax depending on where the goods or services are sold.

Feature

CGST (Central Goods and Services Tax)

SGST (State Goods and Services Tax)

IGST (Integrated Goods and Services Tax)

Who collects it

Central Government

State Government

Central Government (shared with States)

Where it applies

Sales within the same state

Sales within the same state

Sales between different states or imports

Use of tax credit

Can be adjusted against CGST or IGST

Can be adjusted against SGST or IGST

Can be adjusted against IGST, CGST, or SGST

Main purpose

To tax goods and services within a state

To tax goods and services within a state

To tax goods and services sold across states or imported

Revenue goes to

Central Government

State Government

Shared between Central and State Governments


How are the GST rates fixed?

The GST Council is in charge of deciding all GST rates. It includes members from both the central and state governments. The Council meets from time to time to review and change rates, depending on the economy and the government's need to raise funds. The aim is to keep the tax system fair, support businesses, and protect consumers.

GST rates are divided into different groups: 0% (exempt), 5%, 18%, and 40%. The 40% rate is only for luxury and harmful (sin) goods. The older 12% and 28% rates are no longer in use for most items.

For goods and services sold between states, the IGST rate is the total of the Central GST (CGST) and State GST (SGST) rates. For example, if CGST is 9% and SGST is 9%, the IGST rate will be 18%.

Refund of IGST

Refunds of IGST may arise in certain situations, such as when the input tax credit exceeds the output tax liability or due to export of goods or services. The GST refund process can be complex and involves filing refund applications with relevant documents to the concerned tax authorities.

Exporters can claim IGST paid on inputs used for the export of goods or services as a refund, enabling them to compete globally without any tax burden. The government has established specific procedures and timelines for the refund process to facilitate seamless refunds for eligible taxpayers.

In conclusion, integrated Goods and Services Tax (IGST) plays a crucial role in regulating inter-state transactions of goods and services in India. With its uniform rate and destination-based tax revenue distribution, IGST ensures a seamless and consistent tax framework across states. Businesses engaging in inter-state transactions must adhere to IGST rules and maintain valid GSTINs for efficient compliance.

Additional Read: GST Calculator

Conclusion

IGST has made the process of taxing goods and services across states in India much simpler. It offers several benefits, including consistent tax rates, better tax management, fairness in taxation, and an easy online system to track refunds and file GST returns.

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Frequently asked questions

What is the meaning of IGST?

IGST stands for Integrated Goods and Services Tax. It is a type of indirect tax that is levied on the interstate supply of goods and services in India. IGST is collected by the central government, and the revenue is shared between the central and state governments.

How do I track IGST refund status?

To track IGST refund status, taxpayers can log in to the GST portal with their credentials and select the "Track refund status" option. They will then need to enter the relevant information and confirm their refund status.

Who are taxed under IGST?

Entities that engage in the interstate trade of goods and services, including businesses, individuals, and organisations, are taxed under IGST. This includes manufacturers, service providers, and traders who buy and sell goods and services between states in India.

What is the full form of IGST?

IGST stands for Integrated Goods and Services Tax. It applies to interstate transactions of goods and services as well as imports and exports.

What is the difference between GST and IGST?

GST (Goods and Services Tax) is a comprehensive tax applicable across India, while IGST specifically applies to interstate transactions and imports/exports. GST combines CGST (Central GST) and SGST (State GST) or UTGST (Union Territory GST) depending on the nature of the transaction.

What is the IGST percentage?

The IGST rates now primarily fall into 0% (Exempt), 5%, 18%, and a special 40% for luxury/sin goods, with the 12% and 28% slabs largely removed.

Who collects IGST tax?

IGST is collected by the Central Government of India.

When to apply for IGST?

IGST is applicable when goods or services move from one state to another or involve import/export transactions.

How is IGST different from CGST and SGST?
  • IGST applies to interstate transactions and is collected by the Central Government.
  • CGST is collected by the Central Government for intrastate transactions.
  • SGST/UTGST is collected by the respective State/Union Territory Governments for intrastate transactions.

Understanding these distinctions helps businesses comply with GST regulations effectively based on transaction types and locations involved.

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