What is IGST (Integrated Goods & Services Tax)? Meaning, Full Form, Benefits & Example

The Integrated Goods and Services Tax (IGST) is a vital part of India’s Goods and Services Tax (GST) system, which revolutionised the country’s tax structure. Introduced to simplify indirect taxes on goods and services, IGST applies specifically to interstate trade, ensuring that taxation occurs seamlessly across state borders. This blog will explore the IGST full form, its features, the differences between CGST, SGST, and IGST, and how it works.

What is IGST?

IGST stands for Integrated Goods and Services Tax (IGST). It was implemented under the Goods and Services Tax (GST) regime, which replaced a complex system of multiple taxes like VAT, service tax, and excise duty. IGST is levied on interstate transactions or when goods and services move between states.

Under this system, the central government collects taxes, and the state where the goods or services are consumed receives a portion of the revenue. IGST ensures that tax on interstate transactions is uniformly distributed between the centre and the states.

For example, if a seller in Maharashtra sells a product to a buyer in Gujarat, the tax levied on that transaction would be IGST and the revenue would be shared between the central government and Gujarat.

The three components of GST are:- 

CGST: Central Goods and Services Tax

SGST: State Goods and Services Tax

IGST: Integrated Goods and Services Tax

Integrated Goods and Services Tax (IGST) is numerically equal = CGST + SGST. The movement of goods from New Delhi to Gujarat will be subject to IGST.

Features of IGST 

IGST has unique features that make it different from other types of GST, such as CGST and SGST. Here’s a breakdown-

     1. Interstate Transactions 

IGST is applicable when goods and services move across state borders. It also applies to imports and exports, ensuring uniform taxation in cross-border trade.

     2. Simplified Tax Collection

Instead of having multiple tax authorities handle tax collection, IGST allows the central government to collect and distribute the tax accordingly, simplifying the process.

     3. No Cascading Effect 

Like other forms of GST, IGST eliminates the cascading effect of taxes (tax on tax). This reduces the overall tax burden on consumers and promotes transparency in taxation.

     4. Input Tax Credit

Businesses can claim an input tax credit (ITC) on IGST paid during interstate purchases, making the tax system more efficient for companies operating across state lines.

     5. Uniformity

The same tax rate applies to transactions across different states, providing consistency and fairness in the taxation system.

Difference Between CGST, SGST, and IGST

Understanding the difference between CGST, SGST, and IGST is crucial to grasp how the GST system functions-

Example  

If a company in Mumbai (Maharashtra) sells a product to a buyer in Pune (Maharashtra), CGST and SGST are applicable. However, if that company sells to a buyer in Delhi, IGST will be imposed on the sale.

Must Read:- Impact of GST on Two wheelers and Bikes in India

What to Know About IGST? 

When it comes to IGST, it’s essential to understand how it applies to different types of transactions and sectors-

     1. Interstate and Intra-State GST 

   – Intra-state: If a transaction occurs within a state, CGST and SGST are applied.

   – Interstate: IGST is applied when goods or services move between two states. IGST is also applicable for imports into India.

     2. IGST Percentage

The IGST percentage varies depending on the type of goods or services. It ranges from 5% to 28%, depending on the product category.

     3. IGST in Exports and Imports 

   – Exports: Goods and services exported outside India are subject to IGST, but exporters can claim refunds on IGST paid during export transactions.

   – Imports: Goods imported into India attract IGST and other customs duties.

     4. Two-Wheeler Finance and IGST

For those availing of Two Wheeler finance to purchase a bike, IGST can impact the overall cost, especially for interstate purchases. It’s important to factor in bike finance interest rates when planning the purchase.

Process for the Refund of IGST 

The refund of IGST primarily occurs in cases of exports or when the tax has been paid in excess. Here’s how the refund process works-

    1. Eligibility for Refund: 

Exporters can claim refunds on the IGST paid for goods or services exported from India. Businesses can also claim refunds for any excess tax paid.

    2. Process of Claiming Refund:

   – Businesses must file a refund application using GST Form RFD-01 through the GST portal.

   – The form should include details of the transaction and the amount of IGST paid.

   – After verification, the tax authority processes the refund.

Example of IGST with calculated refund.

The refund amount is calculated based on the IGST paid on the export of goods and services. It also depends on whether the business has claimed input tax credit on purchasing goods and services used for export.

For example, if a company in New Delhi sells goods worth Rs. 1,50,000 to a buyer in Gujarat, with an IGST rate of 18%, the IGST amount would be calculated as follows:

IGST = (Value of Goods * IGST Rate)/100

IGST = (1,50,000 * 18)/100

IGST = Rs. 27,000

Conclusion

IGST, or Integrated Goods and Services Tax, is an integral part of the GST system that governs interstate transactions in India. Its primary function is to create uniformity in taxation across state borders, eliminating the complexities of the previous tax system. With features like input tax credits, uniform rates, and simplifying the tax process, IGST has helped streamline trade across India.

Understanding the difference between CGST, SGST, and IGST, along with the IGST percentage, is crucial for businesses and individuals. Whether you’re a business dealing in interstate trade, an importer or exporter, or simply someone purchasing goods, knowing how IGST works can help you make informed financial decisions.

Being informed is the key to better financial management, from applying for refunds to understanding how IGST can affect two-wheeler finance. With the simplified structure of the GST system, including IGST, India’s tax landscape has become more efficient and transparent.

Frequently Asked Questions

What is the meaning of IGST? 

The meaning of an IGST is Integrated Goods and Services Tax.. It is levied on inter-state transactions and imports in India. The IGST is implemented for seamless credit flow between all state governments and the centre, and to make the tax process for cross-border trade simpler.

How do I track IGST refund status?

IGST refund status can be tracked by logging into the GST portal using your login credentials. Navigate to the “Services” tab and select “Refunds”. After that, click on “Track Status.” Enter your refund application details to view the current IGST status and updates related to your refund claim.

Who is taxed under IGST?

 IGST is generally levied on inter-state transactions of goods and services and on goods being imported into India. It is applicable to suppliers and recipients involved. In doing so, the credit flow becomes smooth and the tax burden is shared between the central and state governments.

What is the full form of IGST?

The full form of IGST is Integrated Goods and Services Tax.