Unlocking IGST: India’s Answer to Interstate Tax Challenges

Before the inception of GST, India’s interstate trade faced too many tax burdens. It included CGST, entry taxes, etc., causing confusion for businesses. 

Every truck that crossed the state boundary had to go through additional paperwork and extra charges, leading to delays. For visionary businesses, interstate trade felt like a nightmare. That’s when IGST pitched in as a revolutionary solution. 

Integrated GST was specially designed to eradicate the cascading tax burden and to pave the way towards a unified ecosystem in India. 

This blog will take you through the IGST full form, what it means, who collects it and more. For every CFO and business owner, this interstate taxation manual is a must-read. Let’s understand more in detail. 

What Does IGST Means for Businesses? 

The full form is Integrated Goods and Services Tax, and it applies to interstate trade across the country. By applying IGST on interstate trade, it standardises taxation and streamlines the entire GST mechanism. 

Let’s see what IGST means for businesses: 

1. Businesses don’t have to face the burdens of cascading taxes 
2. No more paying taxes in multiple states; businesses pay IGST once, and it flows through the supply chain. 
3. It allows businesses to trade nationwide. 

IGST Rate: A Quick Snapshot 

Item Category	Rates
Essential items of daily use and educational services	5%
Processed food, packaged foods, mobiles, computers etc.	12%
Mid-range consumer goods (ice cream, pasta, capital goods, etc.)	18%
Luxury goods (cars, consumer durables, sin goods)	28%

Is IGST Expensive Than CGST and SGST? Explained with Example! 

Let’s take a look at the Integrated GST formula below: 

IGST = CGST + SGST 

You must be wondering if integrated GST is more expensive than the intrastate taxes? Who pays and who collects the taxes? So, here it is.  Let’s consider the following example. 

Let’s consider dry fruits. 

Interstate Supply: Dry fruits attract 5% IGST on interstate transfer. So, if dry fruits are supplied from Mumbai to a retailer in Ahmedabad, traders in Mumbai will collect 5% IGST from the trader in Ahmedabad and pass it on to the government.  

Intrastate Supply: For dry fruit supply within the same state, CGST attracts 2.5% and SGST is 2.5%. GST divides the tax share between both governments – CGST goes to the Centre and SGST to the State.

So, IGST isn’t expensive but is equal to the CGST and SGST.

What are IGST Features? 

1. IGST covers all interstate transactions, including supplies between two union territories. 
2. It facilitates indirect taxation at uniform rates across the country. 
3. Companies engaged in interstate trade can utilize IGST payments as Input Tax Credit. 
4. The state share is allocated to the state where the consumption takes place. 

How Can You Calculate IGST? 

Let’s consider the formula to calculate IGST: 

Integrated GST = Sale Price x IGST rate

Example for IGST: 

Consider a company in Maharashtra selling electronic goods like laptops to a dealer in Andhra Pradesh. The IGST rate applied is 18%. The trade accounts to ₹1,00,000. 

Integrated GST = ₹1,00,000 + 18% = ₹18,000 

Therefore, the final invoice amount will be 

₹1,00,000 + ₹18,000 = ₹1,18,000 

Now, out of ₹18,000 integrated GST applied on the trade, 50% goes to the central government, while 50% IGST collected by Maharashtra. 

Which State Receives the Integrated GST Revenue? 

In inter-state commerce under GST, IGST proceeds are allocated to the Centre. Later, the central government keeps 50% of the tax amount with itself and passes 50% to the state that consumes goods or services.  Let’s consider the above IGST example.

What are the benefits of IGST? 

1. The unified tax system integrates transparency and is easy to monitor for the government, sellers, and buyers.  
2. It has established a neutral tax ecosystem across the country. 
3. It has minimised tax burdens and costs for suppliers and consumers. 
4. Claiming ITCs becomes much easier as the central government processes them. 

How to Avail Input Tax Credit (ITC) on IGST?

1. The initial step to claim Input Tax credit is that the Business must be GST registered. 
2. The B2B invoice must identify the levied GST rate, taxes paid, and HSN code of the items, and other necessary information. 
3. The buyer should ensure GSTR-3B is submitted for the specific tax period. 
4. The buyer is required to submit GSTR-3B for the relevant return period. 

Let’s Conclude

Cross-border trade is no longer a financial and tax headache as IGST has eliminated the burden of paying multiple taxes. It has simplified the tax ecosystem and integrated transparency to improve working capital efficiency. 

But the question to CFOs and business owners is, are you using IGST the right way to optimise the tax strategy? 

Do let us know in the comments below! 

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FAQs on IGST 

1. What is the difference between CGST and SGST and IGST? 

CGST stands for Central Goods and Services Tax, which the central government collects on trade within one state. The state government collects SGST on trade within one state. The central government collects IGST on interstate supply, and the revenue is shared by the central and state governments that consume the goods.  

2. What is the maximum IGST rate? 

The maximum IGST rate is 28%. 

3. Is IGST refundable? 

Yes, IGST is refundable under certain conditions like IGST paid on export of goods and services and zero-rated supplies. 

4. What is the minimum penalty for IGST? 

Minimum IGST penalty applied is 10% of the tax due amount, but is subject to a minimum amount of Rs. 10,000.