December 26, 2022

IGST: A Detail Study

IGST stands for integrated goods and services tax. IGST is one of the three components of Goods and Service Tax. An Act to make a provision for levy and collection of tax on inter-State supply of goods or services as well as on imports/exports or both. Let's understand IGST with an example of cashew.

Cashew nuts attract an IGST of 5% in case of interstate transfer. So, if cashew nuts are being sold from Delhi to Agra, traders in Agra will pay IGST, traders in Delhi will collect it and they pay it to the government. The IGST is governed by the IGST Act. Under IGST, the body responsible for collecting the taxes is the Central Government. IGST tax is levied when there is an inter-state transfer of goods and services. When GST was introduced by the central government in July 2017, the idea was to subsume all the various indirect taxes into one. For instance, if a trader from West Bengal has sold goods to a customer in Karnataka worth Rs.5,000, then IGST will be applicable as the transaction is an interstate transaction. If the rate of GST charged on the goods is 18%, the trader will charge Rs.5,900 for the goods. The IGST collected is Rs.900, which will be going to the Central Government. After the collection of taxes, it is further divided among the respective states by the Central Government.

IGST numerically equals= CGST+SGST. It is a destination-based tax and it will accrue to the importing state. It lowers the tax burden by taxing inter-state transactions only once.

IGST Swipe

The reason to implement GST was to simplify the indirect taxation system for the supply and demand side. The Integrated Goods and Services Tax or IGST is a tax under the GST regime that is applied on the interstate (between 2 states) supply of goods and/or services as well as on imports and exports. One thing to remember in IGST is that the importing state gets the accrued benefit of taxes. IGST is paid by the receiving person, collected by the sender, given to the central government and distributed between central and state governments.

The Taxes replaced by GST

List of state taxes

1. Value added tax (VAT) or Sales tax

2. Octroi

3. Entertainment tax

4. Tax on lottery/betting/gambling

5. Purchase tax

6. Luxury tax

List of Central taxes

1. Service tax

2. Additional excise duty

3. Central excise duty

Under IGST

1. Exports would be zero rated

2. Tax will be shared between the central and state government

Things to remember about IGST

1. The importing state gets the final tax revenue.

2. Integrated Goods and Service Tax is a combination of the state and central government's share of the tax.

Refund of IGST

1. The integrated tax for foreign tourists is a similar pattern to that of exports, given that international tourists are known to be non-residential citizens of India that make a visit to the country for a period not exceeding six months. The Indian tax law facilitates the refund of IGST paid to an international tourist leaving India on goods being taken outside the country.

2. The refund to taxpayers who have remitted payments to another tax head, that is SGST and CGST instead of IGST, and it would be refunded. Such citizens must be made a re-deposit in the respective tax head.

Can SGST Credit be used to Pay IGST

The SGST act provides that the cross-sectional usage of tax credits of SGST with CGST or CGST with SGST is not permissible under the Act. But the usage of SGST credit against IGST liability is possible under the Act. The rule is simple: the tax credit of SGST be first used to settle SGST liability and balance if any be used to settle IGST liability but SGST credit shall not be used to settle IGST liability.

It is to be noted that the GST is a destination-based tax, which is received by a State in which the goods are consumed but not by a state in which such goods are manufactured. Unlike earlier when there were multiple taxes such as Central Excise, Service Tax and State VAT etc., under GST, there is just one tax with three components- CGST, SGST and IGST.


Read More: Types of GST, Prerequisites of GST, UTGST.

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