What is IGST (Integrated Goods and Services Tax)

The Integrated Goods and Services Tax (IGST) is a tax levied on interstate supplies of goods and services in India. It applies when a good or service moves from one state to another. IGST essentially combines the Central Goods and also the Services Tax (CGST) and the State Goods and Services Tax (SGST) into a single levy.

Why was IGST introduced?

Before GST, India had a complex indirect tax system with multiple taxes levied by central and state governments. IGST aimed to simplify this system by creating a unified tax structure for interstate transactions.

How does IGST work?

·       Destination-based tax: IGST is a destination-based tax, meaning the tax revenue goes to the state where the goods or services are finally consumed.

·       Tax rate: The IGST rate equals the combined CGST and SGST applicable in the receiving state.

·       Payment and collection: The seller in the originating state collects the IGST from the buyer and deposits it with the central government. The central government then distributes the collected IGST between the central and state governments based on the pre-decided rates.

Benefits of IGST:

·       Simplified tax structure: IGST eliminates the need for separate CGST and SGST payments for interstate transactions.

·       Reduced tax burden: IGST ensures goods and services are taxed only once, avoiding double taxation.

·       Improved logistics: Streamlined tax procedures facilitate smoother movement of goods across state borders.

Example of IGST:

·       A trader in Delhi sells goods worth Rs. 10 lakh to a buyer in Mumbai.

·       The applicable IGST rate is 12% (assuming CGST and SGST rates in Maharashtra are 6%).

·       The buyer pays Rs. 1,20,000 (10 lakh * 12%) as IGST to the seller.

·       The seller deposits the Rs. 1,20,000 IGST with the central government.

·       The central government splits the IGST and distributes Rs. 60,000 each to the central and Maharashtra state governments.

Key points to Remember

·       The importing state receives the final tax revenue collected as IGST.

·       IGST combines the central government's share (CGST) and the state's share (SGST).

·       The GST Council, a joint body of central and state governments, determines the IGST rates.

IGST plays an important role in explaining the flow of goods and services across states in India. It simplifies tax procedures, reduces the tax burden on businesses, and promotes a more efficient indirect tax system.