The Integrated Goods and Services Tax (IGST) is a key component of India’s Goods and Services Tax (GST) system, which was introduced on July 1, 2017. The GST system aims to create a unified market across India by replacing multiple indirect taxes levied by the central and state governments. The IGST is specifically designed to address inter-state transactions. Below is a detailed explanation of IGST:

What is IGST?

The Integrated Goods and Services Tax (IGST) is a tax levied on inter-state supplies of goods and services, as well as on imports into India. It is governed by the IGST Act, 2017.

Key Features of IGST:

Single Tax for Inter-State Transactions:

• IGST is levied by the central government on the supply of goods and services between different states.
• It simplifies the tax structure by replacing the earlier system where Central Sales Tax (CST) was levied along with other state taxes.

Destination-Based Taxation:

• IGST follows the principle of destination-based taxation, meaning the tax revenue goes to the state where the goods or services are consumed.

Tax Credit Mechanism:

• Businesses can claim input tax credit for IGST paid on their purchases, which can be used to offset their IGST, CGST (Central Goods and Services Tax), and SGST (State Goods and Services Tax) liabilities.

How IGST Works:

Inter-State Transactions:

• When a supplier in one state supplies goods or services to a buyer in another state, IGST is charged.
• For example, if a supplier in Maharashtra sells goods to a buyer in Gujarat, IGST will be applicable.

Import of Goods and Services:

• IGST is also applicable on imports. When goods are imported into India, IGST is charged along with customs duties.
• Similarly, IGST is levied on services imported into India.

Collection and Distribution:

• The central government collects IGST and then distributes it between the states involved in the transaction. The state where the goods or services are consumed receives the tax revenue.

Rates of IGST:

• The rates of IGST are the same as those for CGST and SGST combined. These rates are typically set by the GST Council and can vary depending on the type of goods or services. The standard IGST rates are 0%, 5%, 12%, 18%, and 28%.

Input Tax Credit (ITC) Under IGST:

• Input tax credit for IGST can be claimed by businesses on their purchases and can be used to offset their IGST, CGST, and SGST liabilities.
• The order of utilization of ITC is as follows:
  • IGST input credit is first utilized against IGST liability.
  • Any remaining IGST credit is then utilized against CGST liability.
  • Finally, the remaining IGST credit can be utilized against SGST liability.

Compliance Under IGST:

Registration:

• Businesses involved in inter-state supply of goods and services are required to register under GST and obtain an IGST registration number.

Filing Returns:

• Registered taxpayers must file GST returns, including details of inter-state supplies, IGST collected, and ITC claimed.
• Returns are filed monthly or quarterly, depending on the turnover of the business, along with an annual return.

Invoice and Documentation:

• Tax invoices for inter-state supplies must include details of IGST charged.
• Proper documentation and records must be maintained to claim ITC and for audit purposes.

Impact on Businesses:

Ease of Doing Business:

• The introduction of IGST simplifies the tax structure for businesses engaged in inter-state trade, reducing the compliance burden.

Reduction in Tax Cascading:

• By allowing input tax credit across the supply chain, IGST helps in reducing the cascading effect of taxes, leading to lower costs for businesses.

Uniform Taxation:

• IGST ensures uniformity in taxation for inter-state transactions, making it easier for businesses to operate across different states.

Conclusion:

The Integrated Goods and Services Tax (IGST) plays a crucial role in India’s GST framework by facilitating seamless inter-state trade and commerce. It ensures that tax revenue is distributed fairly between the central and state governments and helps in maintaining a uniform tax structure across the country. By allowing for input tax credit and reducing the cascading effect of taxes, IGST simplifies the taxation process and benefits businesses involved in inter-state transactions.