The Indian Government introduced the Goods and Services Tax Act, 2017 which replaced and subsumed most of the earlier indirect tax laws in India. Fundamentally, GST has been divided into 4 categories (excluding compensation cess). These include:
1. Integrated Goods and Services Tax (IGST)
2. Central Goods and Services Tax (CGST)
3. State Goods and Services Tax (SGST)
4. Union Territory Goods and Services Tax (UTGST)
From the above taxes, today we will obtain an in-depth understanding of what is IGST in India.
What is IGST?
As stated above, IGST stands for Integrated Goods and Services Tax and is governed by the Integrated Goods and Services Tax Act, 2017. Whenever an interstate (supply in another state from where the supplier is located) supply of goods or services takes place, then the supplier needs to charge IGST on the supply. Conversely, in the case of intrastate supply (supply in the same state where the supplier is located), the supplier shall charge CGST and SGST on the supply. Whether the supply is interstate or intrastate is governed by the Place of Supply Rules under the GST law. In case of supply to Union Territories, UTGST becomes applicable.
Features of IGST
While we have understood what is IGST tax, let’s look at some of the distinct features of IGST in India:
1. IGST applies to all the interstate supply of goods and services. This also includes export as well as import transactions.
2. The rate of IGST has already been decided by the Indian Government. There are different IGST rates for different types of goods and services. These rates are subject to changes by the government based on macro and microeconomic factors.
3. IGST falls within the ambit of the Central Government. Therefore, IGST collected and paid forms part of the Central Government’s revenue.
4. Buyers can claim an input tax credit (ITC) of IGST on inter-state purchases of goods. This will be reflected in their GSTR-2A/2B after their supplier files GSTR-1 for the respective period within the due date.
5. Apart from the IGST output tax liability, IGST ITC can also be set off against both CGST and SGST output tax liability. Thus, whether you make inter-state or intra-state supply, you can adjust IGST ITC accordingly.
Practical Examples of IGST in India
After obtaining a thorough understanding of what is IGST in India, here are some of the practical examples to bring further clarity to the concept of IGST:
Example 1: Suppose Mr. TATA resides in Gujarat and purchases goods worth Rs. 1 lakh from Gujarat itself (intrastate purchase) with GST@5%. He sells these goods in Maharashtra at Rs. 1.2 lakhs with GST@5% (interstate outward supply). Therefore, the following will be the tax consequences for Mr. TATA:
IGST (Rs.)
CGST (Rs.)
SGST (Rs.)
Outward Supply of Rs. 1.20 lakhs @5% GST
6000
-
-
ITC on purchase of goods of Rs. 1 lakh @5% GST.
-
2500
2500
CGST and SGST ITC set-off against IGST
(5000)
-
-
Remaining IGST payable in cash
1000
-
-
Therefore, Mr. TATA will have to pay Rs. 1000 IGST as cash to the government.
Example 2: Mr. TATA residing in Gujarat now purchases goods of Rs. 5 lakhs from Rajasthan @5% GST (interstate purchase). He sells these goods in Gujarat at Rs. 6 lakhs @5% GST (intrastate outward supply). Here’s how the transaction will follow:
IGST (Rs.)
CGST (Rs.)
SGST (Rs.)
Outward Supply of Rs. 6 lakhs @5% GST
-
15,000
15,000
ITC on purchase of goods of Rs. 5 lakhs @5% GST.
25,000
-
-
IGST ITC will be set off against CGST and SGST
(15,000)
(10,000)
Remaining SGST payable in cash
5,000
IGST ITC is set off first against CGST output liability and then SGST output liability. This is how the GST law works.
Who Fixes the GST Rates in India?
The government has formed the GST council that makes all the important decisions relating to the GST law. The meeting of the GST council happens periodically where they decide on all the major amendments and changes that need to be carried out in GST law based on the current situation while promoting ease of doing business and curbing malpractices. Their goal is to make GST a seamless law promoting a balanced tax structure and consumer welfare.
Refund in Case of IGST
The GST law has specified certain peculiar situations whereby refunds for IGST can arise. Some of these situations include:
Export With Payment of Tax: In case you are an exporter and have opted for the ‘With Payment of Tax’ option, then you need to pay IGST on your export supplies. Eventually, when you file returns, you can claim a refund of the IGST paid on your export supply.
Export Without Payment of Tax: In case you are an exporter and have opted for the ‘Without Payment of Tax’ option, then you aren’t required to charge IGST on outward supplies of goods and services. Consequently, your ITC keeps on accumulating in your electronic credit ledger. The government has allowed such exporters to claim refunds of ITC on purchases used for the export of goods and services.
Inverted Duty Structure: If the GST rate on your purchases is more than the GST rate applicable on your outward supplies, then you can claim a GST refund on the excess balance of your ITC.
Excess Balance in Electronic Cash Ledger: In case of an excess balance lying in your electronic cash ledger, you can claim a refund of the same from the government.
Supply to SEZ Unit/Developer: Supplies to SEZ Unit/Developer are treated as a zero-rated supply of goods and services. Therefore, you can claim a refund of IGST in case you are supplying goods and/or services to SEZ Unit/Developer.
In a Nutshell
GST is a transformative law that eased the indirect tax regime and also removed the cascading effect from the indirect taxes. Barring certain exempt goods and services, now all the goods and services attract GST whether as IGST, CGST, SGST or UTGST. Even the credit cards that you use attract GST. You might be wondering 'What is IGST in India in credit card?'. At present, it stands at 18% on the service charges being charged by the bank. For more useful information, you can visit TATA Capital blogs.
28 December 2023
6 mins read
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