Integrated Goods and Service Tax – An overview

Introduction

The Indian taxation system underwent a major reform with the introduction of the Goods and Services Tax (GST). One of the key components of this new taxation regime is the Integrated Goods and Services Tax (IGST). Understanding IGST is essential for businesses engaged in inter-state trade and cross-border transactions. This article provides a comprehensive overview of IGST, explaining its meaning, purpose, how it works, and implications.

What is IGST?  

IGST stands for Integrated Goods and Services Tax. It is a combination of the state’s share (SGST) and the central government’s share (CGST) of the tax. It is collected by the traders at various stages and paid to the central government first. After that, the central government distributes or shares the state government’s share with them according to the rates fixed by the authorities.

The IGST is calculated as the sum of the Central GST (CGST) and State GST (SGST) rates applicable in the state of destination. Any person or entity who supplies goods or services from one state to another is liable to pay IGST. This includes manufacturers, traders, service providers, and e-commerce operators.

What are the key features of IGST?

The following are the features of Integrated Goods and Service Tax (IGST):

1. Uniformity: IGST ensures uniformity in the tax rates across the country, making it easier for businesses to operate across state borders.

2. Simplifies taxation: The introduction of IGST has simplified the taxation on inter-state transactions of goods and services.

3. Reduces cascading effect: IGST reduces the cascading effect of taxes on inter-state transactions, which was prevalent in the pre-GST era.

What is IGST Tax?

IGST Tax refers to the tax levied on the inter-state supply of goods and services. It is composed of two components – the central component, which goes to the Central Government, and the state component, which is transferred to the respective State Government.

How does IGST work?  

When goods or services are supplied within a state, it is referred to as intra-state transactions, and both the Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) will be levied. On the other hand, when goods or services are supplied between different states, it is known as inter-state transactions, and only the Integrated Goods and Services Tax (IGST) will be collected.

For example, if a company in New Delhi sells goods to a company in Agra, the movement of goods from New Delhi to Agra will attract IGST. The IGST collected will be paid to the central government, which will then distribute the state’s share to the respective state governments.

What is the applicability of IGST?

IGST is applicable when there is a supply of goods or services between two or more Indian states, as well as for import transactions. It ensures a unified and simplified tax system for interstate business transactions.

What are the implications of IGST?

The following are the implications of IGST:

1. Boost to Inter-state Trade: IGST promotes inter-state trade by eliminating the entry tax and ensuring a level playing field for businesses across states. This facilitates the free movement of goods and services, ultimately contributing to economic growth.

2. Elimination of Cascading Effect: By allowing the seamless flow of input tax credit, IGST eliminates the cascading effect of taxes. This results in a reduced tax burden on end consumers and makes goods and services more affordable.

3. Simplified Taxation System: IGST simplifies the taxation system by consolidating multiple taxes into a single tax, making it easier for businesses to comply with the tax regulations.

4. Enhanced Revenue Collection: With the destination-based tax principle, states with higher consumption receive a higher share of tax revenues, encouraging economic development in those regions.

Conclusion

Integrated Goods and Services Tax (IGST) is a significant aspect of the Goods and Services Tax (GST) framework in India. It streamlines inter-state trade, reduces tax complexities, and ensures a fair distribution of tax revenue between the Central and State Governments. Understanding IGST is crucial for businesses engaged in cross-border transactions and inter-state trade. With its implementation, the Indian taxation system has taken a significant step towards achieving the goal of “One Nation, One Tax.” As the economy continues to evolve, IGST will continue to play a vital role in fostering economic growth and development across the nation.

Suggested Read: LUT v/s IGST Refund: Which is Better?