IGST stands for Integrated Goods and Services Tax. It is a type of tax applied when goods or services are sold from one state to another in India. This tax is collected by the central government and then shared with the state where the goods or services are consumed.
When is IGST Applied?
IGST is applicable in the following situations:
- Interstate Transactions: When goods or services move from one state to another within India.
- Imports: When goods or services are brought into India from another country.
- Exports: When goods or services are sent from India to another country.
- Transactions with SEZs: When dealing with Special Economic Zones.
How is IGST Calculated?
The formula to calculate IGST is:
IGST = Value of Goods/Services × IGST Rate
For example, if a product worth ₹1,00,000 is sold from Maharashtra to Gujarat with an IGST rate of 18%, the IGST would be:
IGST = ₹1,00,000 × 18% = ₹18,000
The total amount charged to the buyer would be ₹1,18,000.
How is IGST Different from CGST and SGST?
| Tax Type | Applies To | Collected By | Revenue Shared With |
|---|---|---|---|
| CGST | Within the same state | Central Government | Central Government |
| SGST | Within the same state | State Government | That State Government |
| IGST | Between different states | Central Government | Destination State Government |
In intrastate transactions, both CGST and SGST are applied. In interstate transactions, only IGST is applied.
Benefits of IGST
- Simplifies Taxation: Combines multiple taxes into one, making it easier for businesses.
- Prevents Double Taxation: Ensures that the same transaction isn’t taxed multiple times.
- Facilitates Seamless Credit Flow: Businesses can claim input tax credit on IGST paid.
- Promotes Uniformity: Standardizes tax rates across states.
Key Points to Remember
- IGST is collected by the central government and then shared with the state where the goods or services are consumed.
- Applicable on interstate transactions, imports, and exports.
- Businesses must register for GST if they engage in interstate trade.
- Timely filing of returns is essential to claim input tax credits and avoid penalties.
Understanding IGST is crucial for businesses involved in interstate trade in India. It ensures compliance with tax laws and helps in smooth business operations.
