What is IGST – Integrated Goods and Service Tax? Check Full Form, Meaning and Examples

Learn about IGST rates, how they are set, and how to get a refund on IGST.
Business Loan
4 min read
20-June-2024

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.

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.

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.

Example for IGST with calculation

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.

For example, if a company in Maharashtra sells goods worth Rs. 1,00,000 to a buyer in Gujarat, the IGST rate is 18%. Therefore, the IGST amount would be calculated as follows:

IGST = (Value of Goods * IGST Rate)/100

IGST = (1,00,000 * 18)/100

IGST = Rs. 18,000

So, the seller in Maharashtra would collect Rs. 1,00,000 as the value of goods sold and Rs. 18,000 as IGST, and the total amount payable by the buyer in Gujarat to the seller would be Rs. 1,18,000.

How are the GST rates fixed?

The GST Council undertakes the fixation of all GST rates. It comprises representatives from both central and state governments. The Council meets periodically to review and revise the rates based on economic conditions and the need for revenue generation. The goal is to ensure a balanced tax structure while promoting ease of doing business and enhancing consumer welfare.

The GST rates fall into different slabs: 5%, 12%, 18%, and 28%, with additional rates for certain specific goods and services. The IGST rate is the same as the applicable CGST and SGST rates combined. For instance, if the CGST and SGST rates are both 9% in a particular state, the IGST rate for inter-state transactions would 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

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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 vary from 0% to 28%, depending on the type of goods or services.

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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