IGST: Integrated Goods and Services Tax Explained
Integrated Goods and Services Tax (IGST) is a part of India’s unified GST system, applied to inter-state transactions of goods and services, as well as on imports and exports. IGST simplifies the taxation of cross-border trade by consolidating the earlier complex tax structure. The tax revenue collected under IGST is shared between the central government and the destination state where the goods or services are consumed.
Features of IGST
Applicability:
- Levied on inter-state sales of goods and services.
- Applies to imports, exports, and supplies to or from SEZs (Special Economic Zones).
Revenue Distribution:
- Collected by the central government and later distributed to the destination state.
Uniform Taxation:
- IGST ensures consistent tax rates across states, promoting seamless trade and commerce.
Input Tax Credit (ITC):
- Taxpayers can claim ITC on IGST paid, which can be offset against CGST, SGST, or IGST liabilities.
How IGST Works
The implementation of IGST eliminates the need for multiple state taxes on inter-state trade. For instance:
Example: A seller in Maharashtra sells goods worth ₹1,00,000 to a buyer in Karnataka with an 18% GST rate.
- IGST Rate: 18%
- Tax Collected: ₹18,000
- The central government collects the full ₹18,000 and later distributes Karnataka’s share of the tax based on consumption.
Difference Between IGST, CGST, and SGST
| Type of GST | Applicable On | Levied By | Purpose |
|---|---|---|---|
| CGST | Intra-state transactions | Central Government | Central tax revenue collection |
| SGST | Intra-state transactions | State Government | State tax revenue collection |
| IGST | Inter-state transactions | Central Government | Shared revenue for central and state |
Benefits of IGST
Seamless Inter-State Trade:
Removes barriers for businesses operating across state borders, creating a unified market in India.Reduced Tax Complexity:
Consolidates multiple taxes into one, simplifying compliance for businesses.Encourages Export and Import:
Exports are zero-rated under IGST, making Indian goods and services more competitive globally.Transparency:
A unified tax system ensures better tracking and accountability of inter-state transactions.
IGST and Exports
Exports are classified as zero-rated supplies under GST, meaning no IGST is charged on exports. Exporters can either:
- Claim a refund of input taxes paid, or
- Utilize input tax credit to offset other GST liabilities.
Documents Required for IGST Registration
Businesses engaged in inter-state trade must register for IGST under the GST regime. The required documents include:
- PAN Card of the business or applicant.
- Business Address Proof: Utility bills or rental agreement.
- Identity Proof of Promoters: Aadhaar, passport, or voter ID.
- Bank Account Details: Cancelled cheque or bank statement.
- Digital Signature Certificate (DSC): For companies and LLPs.
FAQs on IGST
1. What is IGST?
IGST is a tax levied on inter-state transactions of goods and services, imports, and exports in India. It ensures fair revenue distribution between the center and the states.
2. Who collects IGST?
The central government collects IGST and shares the revenue with the destination state where the goods or services are consumed.
3. Can IGST be adjusted with CGST or SGST?
Yes, input tax credit for IGST can be utilized to offset IGST, CGST, or SGST liabilities.
4. Is IGST applicable to exports?
Exports are zero-rated under IGST, allowing exporters to claim refunds on input taxes paid.
5. What happens if IGST is not filed on time?
Non-compliance may lead to penalties, interest charges, and loss of input tax credit eligibility.
