IGST: all you need to know about IGST, All Details for IGST Act 2017

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IGST: Overview of the IGST Bill 2018, What is IGST?. IGST Act, 2017 governs Integrated Goods & Services Tax, which is levied and collected by the Centre on inter-state supply of goods and services including imports into India and supplies made outside India along with supplies to / from SEZs.

IGST: Overview of the IGST Bill 2018

IGST Bill

What is IGST?

The Integrated Goods and Services Tax Act, 2017 [IGST] was passed by the Parliament for levy and collection of tax on inter-state supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto.

The Union Government presented the Integrated Goods and Service Tax Bill, 2017 in Lok Sabha and it was passed by the same on 29th March, 2017. The Rajya Sabha passed the bill on 6th April, 2017 and was assented to by the President on 13th April, 2017.

INTEGRATED GOODS & SERVICES TAX ACT, 2017

IGST is levied and collected by the Centre on inter-state supply of goods and services. Under Article 269A of the Constitution, IGST on supplies in the course of inter-state trade or commerce is levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council. IGST paid is available as credit to set off against the payment of IGST, CGST and SGST sequentially on output supplies

IGST (Integrated Goods & Services Tax) Act, 2017 deals with supplies interstate, import into India and supplies made outside India. The following table illustrates the same.

SUPPLY TAX / TAXES
Intra state CGST+ SGST
Intra UT CGST+ UTGST
Interstate/ import/ SEZ IGST

IGST is applicable all over India including the state of Jammu & Kashmir

As per section 5 of IGST Act, 2017 a maximum rate of 40% maybe imposed on interstate supply of goods and/ or services.

A “Dual GST” model has been adopted in view of the federal structure of our country. Centre and States simultaneously levy GST on every supply of goods or services or both which, takes place within a State or Union Territory. Thus, there are two components of GST:

Relevance of IGST

Before discussing the IGST Model and its features, it is important to understand how inter state trade or commerce is being regulated in the present indirect tax system. It is significant to note that earlier the Central Sales Tax Act, 1956 regulated the inter-state trade or commerce (hereinafter referred to as “CST”), the authority for which was constitutionally derived from Article 269 of the Constitution. Further, as per Article 286 of the Constitution of India, no State could levy sales tax on any sales or purchase of goods that took place outside the State or in the course of the import of the goods into, or export of the goods out of the territory of India. Only the Parliament could levy tax on such a transaction.

The Central Sales Tax Act was enacted in 1956 to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-state trade or commerce. The Act also provided for the levy and collection of taxes on sales of goods in the course of inter-State trade. However, CST was collected and retained by the origin State, which was an aberration. Any indirect tax, by definition, is a consumption tax, the incidence of which, is borne by the consumer. Logically, the tax must accrue to the destination State having jurisdiction over the consumer.

Input Tax Credit (hereinafter referred to as ITC) of CST was not allowed to the buyer which, resulted in cascading of tax (tax on tax) in the supply chain.

Moreover, various accounting forms were required to be filed in CST viz., C Form, E1, E2, F, I, J Forms etc. which added to the compliance cost of the business and impeded the free flow of trade.

The IGST model was brought in to remove all such deficiencies. IGST is a mechanism to monitor the inter-State trade of goods and services and ensure that the SGST component accrues to the consumer State. It maintains the integrity of ITC chain in inter-State supplies. The IGST rate is broadly equal to CGST rate plus SGST rate. IGST would be levied by the Central Government on all inter-State transactions of taxable goods or services.

IGST rate= CGST rate + SGST rate

Cross-utilisation of credit requires the transfer of funds between respective accounts. The utilisation of credit of CGST & SGST for payment of IGST would require the transfer of funds to IGST accounts. Similarly, the utilisation of IGST credit for payment of CGST & SGST would necessitate the transfer of funds from IGST account. As a result, CGST account and SGST (of, say, Punjab) would have equal amount, whereas, there will not be any amount left in IGST and SGST (of, say, Maharashtra) after the transfer of ITC, in case of inter-state transaction between Puna & Maharashtra.

The IGST payment can be done by utilising the ITC. The amount of ITC on account of IGST is allowed to be utilised towards the payment of IGST, CGST and SGST, in that order.

(i) Inter-State Supply

Subject to the place of supply provisions, where the location of the supplier and the place of supply are in:

  • (a) Two different States;
  • (b) Two different Union Territories; or
  • (c) A State and a Union Territory,such supplies shall be treated as the supply of goods or services in the course of inter-State trade or commerce. Any supply of goods or services in the taxable territory, not being an intra-State supply, shall be deemed to be a supply of goods or services in the course of inter-State trade or commerce.

Also, supplies to or by Special Economic Zones (SEZs) are defined as inter-State supply. Further, the supply of goods imported into the territory of India till they cross the customs frontiers of India or the supply of services imported into the territory of India shall be treated as supplies in the course of interState trade or commerce. Also, the supplies to international tourists are to be treated as inter-State supplies.

Inter-State supply :

Supply of goods from one State or Union Territory to another State or Union Territory

  • Supply of services from one State or Union Territory to another State or Union Territory
  • Import of goods till they the cross customs frontier
  • Import of services
  • Export of goods or services
  • Supply of goods/services to/by SEZ
  • Supplies to international tourists
  • Any other supply in the taxable territory which is not intra-State supply.

Thus, the nature of the supply depends on the location of the supplier and the place of supply.

(ii) Intra-State supply: It has been defined as any supply where the location of the supplier and the place of supply are in the same State or Union Territory.

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