Table of Contents
What is IGST?
IGST stands for Integrated Goods and Services Tax, a core component of the Goods and Services Tax (GST) framework. Specifically designed for interstate movement of goods and services.
Related Read: What is CGST?
When is IGST Applicable?
IGST is applicable when there is an inter-state supply of goods or services. This means that if a transaction involves the movement of goods or services from one state to another within India, IGST is charged.
It also applies to imports and exports, ensuring that goods and services crossing state or national borders are taxed uniformly.
How to Calculate IGST?
IGST is a combined tax levied on the supply of goods and services that move from one state to another within India. It’s a single tax that replaces multiple indirect taxes and is shared between the central and state governments.
IGST Formula
The formula for calculating IGST:
IGST = Value of Supply * IGST Rate
Where,
- Value of Supply: This is the total value of the goods or services supplied.
- IGST Rate: The applicable IGST rate varies depending on the nature of the goods or services.
IGST Calculation with Example
Let’s say Delhi-based company, ‘Tech Gadgets’, sells a product worth Rs. 10,000 to a customer in Mumbai. The applicable IGST rate for the product is 18%.
Here,
The Value of Supply is: Rs. 10,000
IGST Rate for the Product is: 18%
= 10,000 * 18/100
= Rs. 1,800
Therefore, the total amount payable by the customer in Mumbai is Rs. 11,800 (Rs. 10,000 product value + Rs. 1,800 IGST).
Breakdown of IGST Share
The customer in Mumbai pays an IGST of Rs. 1,800, which is divided equally between the central and state governments. In this case, the Central Government (CGST) and the Maharashtra State Government (SGST) each receive Rs. 900.
Read More: What is SGST?
Features of IGST
IGST offers several distinct features that make it an effective tax mechanism:
1. Uniform Taxation
Unlike CGST and SGST, which have varying rates across states, IGST has a single, unified tax rate set by the GST Council. This provides transparency and predictability for businesses operating across state borders.
2. Ease of Compliance
Before IGST, interstate transactions required complex tax calculations and separate filings for central and state taxes. IGST simplifies this by requiring businesses to file a single return for all interstate supplies, reducing administrative costs and paperwork.
3. Enhanced Revenue Sharing
With IGST, the central and state governments share the tax revenue collected on interstate trade in a predetermined manner, fostering cooperation and ensuring both levels of government benefit from economic activity across the country.
4. Input Tax Credit (ITC) Mechanism
A key benefit for businesses, IGST allows the claiming of input tax credit (ITC). This means businesses can use the IGST paid on purchases to offset their IGST liability on future sales, reducing the overall tax burden and promoting a smooth flow of credit across the supply chain.
5. Facilitates Trade
IGST is exclusively applied to the supply of goods and services between different states in India, covering both Business-to-Business (B2B) and Business-to-Consumer (B2C) transactions.
Benefits of IGST
- Simplifies Tax Structure: By merging various taxes into one, IGST simplifies the overall tax structure.
- Reduces Tax Evasion: A centralized system reduces the chances of tax evasion.
- Boosts Revenue Collection: Ensures a steady flow of revenue to both central and state governments.
- Enhances Transparency: The GST network (GSTN) makes the tax process transparent and efficient.
Refund of IGST
Refund of IGST is applicable in various scenarios, such as:
- Export of Goods and Services: Businesses exporting goods or services can claim a refund of IGST paid.
- Input Tax Credit: Unutilized input tax credit can be claimed as a refund under certain conditions.
To claim a refund, businesses need to file the appropriate forms on the GST portal and comply with the necessary documentation requirements.
Points to Remember About IGST
- IGST is levied on inter-state transactions and imports.
- The tax revenue is shared between the central and state governments.
- Compliance with IGST regulations is essential for businesses involved in inter-state trade.
- Timely filing of returns and accurate tax calculations ensure smooth business operations.
FAQs
1. What is the full form of IGST?
The full form of IGST is Integrated Goods and Services Tax.
2. Who is required to register for IGST?
Any business engaged in inter-state supply of goods or services needs to register for IGST.
3. Which government collects IGST?
The central government collects IGST, and the revenue is shared with the respective state governments.
4. What is an IGST refund under Rule 96?
Rule 96 governs the refund of IGST paid on goods and services exported out of India.
5. Where can I check my IGST refund status?
You can check the IGST refund status on the GST portal using your login credentials.
6. Can IGST be claimed?
Yes, IGST can be claimed as input tax credit and adjusted against output tax liability.
7. What is a refund under section 19 of IGST Act?
Section 19 provides for the refund of unutilized input tax credits in certain cases, such as zero-rated supplies.
8. How is the IGST rate determined?
The GST Council determines the IGST rate based on the nature of goods or services.
9. Are there any exceptions to the IGST rate formula?
Certain goods and services may have specific rates or exemptions as notified by the GST Council.
10. How do I find the current IGST rate for a specific product or service?
You can check the current IGST rate on the GST portal or consult the latest GST rate notifications issued by the government.
By understanding IGST and its implications, businesses can ensure compliance and take advantage of the benefits offered by this tax system.
