Overview of the IGST Act

SECTION : Overview of the IGST Act

  • Lesson Objectives

    On completion of this lesson, you will be able to understand:

    ·     Meaning and Applicability of IGST

    ·     Inter-state Supplies and Imports

    ·     Advantages of IGST Model

    ·     Payment of IGST.

    ·     Zero Rated Supply


    Please go through the First Video of Chapter 13.

    IGST – Integrated Goods & services Tax


    “Integrated Goods and Services Tax” (IGST) means tax levied under the IGST Act on the supply of any goods and/or services in the course of inter-State trade or commerce.


    Inter-state supplies

    A supply of goods and/or services in the course of inter-State trade or commerce means any supply where the location of the supplier and the place of supply are in different States/union territories.


    More Details


    IGST shall be levied and collected by Central Government.


    IGST would be broadly SGST (State Goods & Services Tax) and

    CGST (Central Goods & Services Tax).


    It shall be levied on all inter-State taxable supplies of goods and services.


    Imports under GST

    All imports/exports will be deemed as inter-state supplies for the purposes of levy of GST (IGST).


    IGST will be levied on all imports. IGST paid on import of goods and services can be fully and completely set-off with the Tax Liability.


    Zero Rated Supply

    ‘Zero Rated Supply’ means any of the following supplies of goods or services or both, namely

    a)     Export of goods or services or both; or

    b)    Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone Unit.

    Such supplies are exempt supplies. But input tax credit on goods or services used for such exports can be availed.

    A Registered Person making zero rated supply shall be eligible to claim refund under either of the following options,

    a)     He may supply goods or services or both under bond or letter of undertaking without payment of integrated tax and claim refund of unutilized input tax credit. It is subject to conditions, safeguards and procedures as per the Law.

    b)    He can make the payment of integrated tax and claim refund of such tax. It is subject to conditions, safeguards and procedures as per the Law.

    Transfer of GST to State Government

    The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. According to the destination principle, SGST collected by the Central Government will be transferred to the State Govt. where Customer is located.

    Example:-Suppose Mr. Vimal supplied goods from Maharashtra to Kiran in Delhi. Kiran has to pay IGST as it is a Inter-state supply. This IGST will be collected by the Central Government. Later one portion of the IGST should be paid to the Delhi Government (where customer is located) as per the Destination based principle.



    Advantages of IGST Model

    The major advantages of IGST Model are:

    a)     No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer;

    b)    Maintenance of uninterrupted ITC chain on inter-State transactions;

    c)     No refund claim in exporting State, as ITC is used up while paying the tax;

    d)    Simple accounting with no additional compliance burden on the taxpayer;

    e)     Self-monitoring model;

    f)      Ensures tax neutrality while keeping the tax regime simple;

    g)     Would facilitate in ensuring high level of compliance and thus higher collection efficiency.

    h)    Model can handle ‘Business to Business’ as well as ‘Business to Consumer’ transactions.


    Payment of IGST

                      The IGST payment can be done utilizing ITC or by cash. However, the use of ITC for payment of IGST will be done using the following hierarchy,-

     Procedure for payment of GST

    1.      First available ITC of IGST shall be used for payment of IGST;

    2.      Once ITC of IGST is exhausted, the ITC of CGST shall be used for payment of IGST;

    3.      If both ITC of IGST and ITC of CGST are exhausted, then only the dealer would be permitted to use ITC of SGST for payment of IGST.

    4.      Remaining IGST liability, if any, shall be discharged using payment in cash.


    GST System will ensure maintenance of this hierarchy for payment of IGST using the credit.


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