All You Need to Know on Inter-State Supply and Intra-State Supply Under GST

The Goods and Services Tax (GST) is one of the most significant reforms in India’s taxation system, unifying the indirect tax structure under a single umbrella. A key aspect of GST revolves around the classification of supply as either inter-state GST or intra-state GST. This classification determines whether Integrated GST (IGST) or a combination of Central GST (CGST) and State GST (SGST) is applied to a transaction.
Understanding the distinction between inter-state and intra-state supply is crucial for compliance and accurate tax calculation. Let’s delve into the details of these supply types, their characteristics, and the implications under the GST framework.

The Concept of Supply in GST

Under GST, the term “supply” is broad and encompasses all forms of transactions involving goods or services, including sales, transfers, exchanges, rentals, leases, and disposals. The taxation mechanism in GST hinges on the location of the supplier and the recipient, as these determine whether the supply is classified as inter-state or intra-state.

What is Inter-State Supply?

Inter-state supply refers to transactions where the supplier’s location and the place of supply (recipient’s location) are in different states or union territories. The Central Government collects IGST on such transactions.

Key Characteristics of Inter-State Supply

• Location-Based Classification: If the supplier and recipient are in different states or union territories, the transaction qualifies as inter-state supply.
• Exports and Imports: India treats the export of goods or services and imports as inter-state supplies.
• Special Economic Zones (SEZs): Supplies to or from SEZ units are classified as inter-state supplies.
• Exclusive Economic Zones (EEZs): Transactions involving goods or services in EEZs also fall under inter-state supply.

Examples:

• A supplier in Maharashtra sells goods to a customer in Gujarat.
• Services provided from a unit in a SEZ to a domestic client.
• Export of goods from India to the United States.

What is Intra-State Supply?

Intra-state supply refers to transactions where the supplier’s location and the place of supply are in the same state or union territory. For these transactions, both CGST and SGST are levied, with tax revenue shared between the Central and State Governments.

Key Characteristics of Intra-State Supply

• Same State Transactions: When both the supplier and recipient are located within the same state or union territory, the transaction qualifies as intra-state supply.
• Tax Sharing Mechanism: The Central Government receives CGST, while the State Government receives SGST.
• Local Transactions: Applies to goods or services that do not cross state or union territory boundaries.

Examples:

• A retailer in Karnataka sells goods to a customer in Bengaluru.
• A hair salon provides services to clients within the same city.

Inter-State GST vs Intra-State GST

Understanding the differences between inter-state and intra-state GST is vital for businesses to ensure proper compliance and avoid penalties.

Tax Rate Comparison

For both inter-state and intra-state transactions, the overall GST rate remains the same. However, in intra-state supply, the tax is split equally between CGST and SGST. For inter-state supply, the IGST rate equals the sum of CGST and SGST.

Points to Remember for Inter-State Supply

• Inter-state supply includes transactions crossing state or union territory boundaries.
• Inter-state supply always categorizes imports and exports.
• Inter-state supply includes supplies involving the Special Economic Zone (SEZ) or the Exclusive Economic Zone (EEZ).

Points to Remember for Intra-State Supply

• Intra-state supply applies when both the supplier and recipient are in the same state or union territory.
• Taxes are shared between the Central and State Governments.
• Both CGST and SGST are collected on the same invoice.

Compliance Under GST for Businesses

• Registration: Businesses engaged in inter-state supply must register under GST, irrespective of their turnover.
• Invoice Details: Accurate details of the supplier’s and recipient’s locations are essential for correctly classifying the supply.
• Tax Filing: In GST returns, taxpayers report IGST separately for inter-state transactions and CGST and SGST for intra-state transactions.
• Input Tax Credit (ITC): You can claim ITC on tax paid for inter-state and intra-state supplies, provided you meet all compliance requirements.

Suggested Read : GST Rate on Food Items

Conclusion

The difference between inter-state and intra-state GST is fundamental to the GST framework, ensuring proper distribution of tax revenue between the Central and State Governments. Accurately categorizing transactions helps businesses streamline operations, avoid penalties, and support the effective implementation of GST.