What is IGST? Explain the provisions of IGST Act, 2017

You’ve probably mastered CGST and SGST, but what about IGST? Before that, what is IGST?

IGST stands for “Integrated Goods and Services Tax.” It is a type of indirect tax that is levied on the supply of goods and services in India. But, then, what is GST? Isn’t IGST or GST the same thing?

The answer is no! GST is a much broader concept. However, IGST is levied only at the time of “interstate” (between states and union territories) supply of goods and services.

What is IGST in the GST System?

As discussed above, IGST means a tax that is levied or imposed during the supply of goods or services between two or more than two states or union territories. (Remember the word “two or more than two”.)

Here is a simple example of IGST:

Suppose a company based in Delhi manufactures and sells shoes to a company based in Mumbai. The company in Delhi will charge the company in Mumbai IGST on the sale of the shoes, as the supply of goods is taking place from one state to another (i.e., an inter-state supply).

Now that you know what IGST is, keep reading to learn more about it and the features and provisions of the IGST Act, 2017.

What is the IGST Act, 2017?

The IGST Act, 2017 is an Act of the Parliament of India that provides the provisions (rules or regulations) for the levy, collection, and administration of the IGST.

Another benefit of IGST is that Input Tax Credit is available for the IGST paid on inputs (i.e., raw materials, goods, and services) against the IGST payable on outputs (i.e., finished goods and services) under the IGST Act, 2017.

Confused about what “input tax credit” means? No need to worry; learn what is Input Tax Credit (ITC) for a better understanding.

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What are the Objectives of IGST?

The main objectives (goals/targets) of the Integrated Goods and Services Tax (IGST) are the followings:

1. To remove inter-state trade barriers: IGST was introduced to improve inter-state trade and commerce by removing barriers such as different tax rates and compliance requirements in different states.
2. To unify the Indian tax system: To promote the smooth flow of goods and services across the country by providing a single, unified tax system.
3. To promote economic growth: IGST was introduced to promote economic development by creating a more favorable business environment.
4. To remove the inefficient Central Sales Tax (CST): Central Sales Tax (CST) was the previous indirect tax (before 2017) that was levied on the sale of goods in India. CST was replaced by IGST (after 2017) as part of the GST system.
5. To eliminate Tax evasion & avoidance: Previously, people used to avoid paying taxes on inter-state sales because of the complex rules and different tax rates of different states. So, IGST removed such hindrances after 2017.
6. Reduce cost of production: The IGST is expected to lower the overall cost of manufacturing goods and services. This will help boost the domestic market (the Indian market) in the future.

Doesn’t that sound pretty good? But, still, the GST system lacks some core improvements! If you’re interested in knowing more about this, read Why GST is not suitable in India for more details.

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Features of IGST

Here are the salient features of IGST (Integrated Goods and Services Tax):

1. IGST is a type of indirect tax that is levied on the supply of goods and services in India.
2. Applicable to all inter-state supplies.
3. Levied at the rate of tax specified in the IGST Act, 2017, which is currently 18%.
4. The place of supply determines the liability to charge IGST.
5. Input tax credit is available for the IGST paid on inputs.
6. Administered (managed/controlled) by the Central Board of Indirect Taxes and Customs (CBIC).
7. A destination-based tax, which means that the tax is collected in the state where the goods or services are consumed.
8. IGST is not a tax on the movement of goods or services, but on the supply of goods and services.
9. IGST revenue is distributed amongst Centre and State as well.

To get more insights into IGST, check the official PDF on IGST by the CBIC (Central Board of Indirect Tax & Customs):

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Main Provisions of IGST Act, 2017

The main provisions of the IGST Act, 2017 are as follows:

1. Levy and Collection of IGST

• The Act provides for the levy and collection of IGST on all inter-state supplies of goods and services.

• IGST is levied in the following rate: Rate of IGST = CGST Rate + SGST Rate. Suppose the rate of CGST and SGST is 9%. Thus, IGST = 18% = (9% + 9%)

• The maximum rate of IGST should not exceed 44%.
• IGST is to be collected from the Taxable Person (i.e. the Seller).
• Currently, IGST is not levied on Petroleum products.
• IGST obeys the RCM (Reverse Charge Mechanism). It means when an Unregistered person makes a supply to a Registered person. Then, in this case, the recipient (the receiver) will pay the IGST, i.e., the Registered person.
• The government has the power to order the list of categories of goods and services for which tax is to be paid on a reverse charge basis.
• The government can also specify the categories of goods and services for which tax is to be paid by e-commerce operators.

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2. Determination of Nature of Supply

A. IGST will be levied if: the LOCATION of Supplier and PLACE of Supply is in two different states OR two different Union Territories OR a State and a Union Territory.

B. All the Imports are treated as “Inter-State” supplies. So, IGST is levied on imports. IGST must be calculated after adding the applicable customs duty to the value of imported goods.

C. Supplies in the given cases are treated as Inter-State supplies and thus, IGST is levied:

• When Supplier is in INDIA, but place of supply is OUTSIDE INDIA.
• When suppliy is to or by SEZ Units.
• When supply is NOT INTRA STATE.

D. Supplies made to SEZ units (Special Economic Zones) are ZERO RATED. It means if a supplier is selling (supplying) something to a SEZ Unit–then, that Supplier can either claim REFUNDS or simply Supply without payment of Taxes.

E. All the Exports are treated as Inter-State supplies. However, a good thing is that exports are ZERO RATED.

F. If the supplier is in territorial waters (simply put, transactions on a ship), then that supply will be assumed to be in the nearest state or union territory for the purpose of GST.

G. Alchohol products for human consumption are exclusively taxed by the States. So, IGST is not levied on such products.

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3. Zero Rated Supply

• Zero-rated supply refers to the supply of goods and services that are taxed at a rate of 0%. You read that right! (0%)

Suppose a company based in Delhi supplies goods to a company based in Mumbai. The supply of goods is considered to be an inter-state supply and is taxable under IGST.

However, if the goods being supplied are agricultural products, they are considered to be a zero-rated supply, and no IGST is charged on the supply.

This means that the company in Delhi does not have to charge any tax on the sale of the agricultural products to the company in Mumbai.

• Under the IGST Act of 2017, exports of goods and services and supplies to SEZ units are always considered zero-rated supplies.

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4. Place of Supply under IGST

As GST is a destination-based tax, understanding “Place of Supply” is important.

• Section 10: Place of supply (within India) (excluding exports & imports)

Cases for Supply	Place of Supply
1. Supply involves “movement” of goods	The location where movement of goods is terminated or finished.
2. Where goods are supplied on “order/direction of 3rd party”	The place or location of “3rd party” and not the recipient.
3. Supply does “NOT involve moment” of goods	Location of goods at the time of delivery.
4. Goods are assembled/installed at site	Place of such installation site or delivery.
5. Goods “supplied on conveyance” (like Train)	Location at which such goods are taken on conveyance.
6. When place of supply can “NOT be determined”	As maybe pescribed.

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• Section 11: Place of supply (in case of Exports and Imports)

Nature of Supply	Place of Supply
Goods are Imported into India	Location of the Importer.
When goods are Exported from India	Location outside of India.

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• Section 12: Place of supply of Services (Both: Supplier and Receiver are in India)

1. In Registered Person’s case: Location of such registered recipient.
2. In case of Unregistered person: Location of recipient if the address exists in the records with the Supplier.
3. In case of Immovable property: where such immovable property is located.
4. Cultural / entertainment / sports / scientific event: Location of such event.
5. In case of delivery by mail or courier: If registered person, then his location. If unregistered person, then the place where the goods were handed over to the courier company.

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• Section 13: Cross border supply of services (where either Supplier or Receiver is outside India)

1. General rule: Location of recipient of services OR supplier of services.
2. In case of Immovable property: where such immovable property is located.
3. Cultural / entertainment / sports / scientific event: Location of such event.
4. In case of banking services: Location of the “Supplier” of services.
5. In case of delivery by mail or courier: place of supply is the place of destination of such goods.

If you’re still finding it hard to understand the “Place of Supply” provisions, we recommend watching the below-given YouTube video for a better understanding:

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5. Refund of IGST Paid on Supply of Goods to Tourist (Leaving India)

According to the IGST Act of 2017, The Integrated Tax (IGST) paid by a Tourist will be refunded if he or she leaves India.

The word “Tourist” here means any person who came to India for a stay of not more than six months for any legit reason.

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6. Apportionment (Division) of IGST

Apportionment, or division, of IGST refers to the process of dividing the IGST collected on interstate transactions among the central and state governments.

This is done in order to ensure that the revenue from IGST is distributed fairly between the central and state governments.

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FAQs About IGST or IGST Act, 2017