IGST – Integrated Goods and Service Tax

|Updated on: February 25, 2021


The IGST full form under GST law is Integrated Goods and Service Tax. It is called as IGST Act 2017.

The scope of IGST Model gives meaning to the GST Act of which IGST is one of the components. The IGST Act clarifies that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services.

The seller making supply outside the state will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. And the exporting State will transfer to the Centre the credit of SGST used in payment of IGST.

On the other hand, the Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will then transfer to the importing State the credit of IGST used in payment of SGST.

The relevant information will also be submitted to the Central Agency which will act as a clearinghouse mechanism, verify the claims and inform the respective governments to transfer the funds.

What is IGST?

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

Finer point 1

A supply of goods and/or services in the course of import into the territory of India shall be deemed to be a supply of goods and/or services in the course of inter-State trade or commerce.

Finer point 2

Export of goods and/or services shall be deemed to be a supply of goods and/or services in the course of inter-State trade or commerce.

Integrated goods and services tax (IGST) would mean the tax levied under IGST Act on the supply of any goods and / or services in the course of inter-state trade or commerce.

Integrated GST shall also apply to import of goods and services into India. The basic ideology stipulates that any supply of goods or services in the course of import of goods or services into Indian territory shall be deemed to supply involving inter-state trade or commerce and hence liable to IGST.

For transactions that are look-alike of import transactions and export of goods and services, shall be deemed to be supplied in course of inter-state trade or commerce.

Interstate trade or commence will, therefore include :

  • Supplies made in the course of – Inter-state trade or commence
  • Import into Indian territory (deemed to be inter-state)
  • Export (deemed to be inter-state)

Thus, Integrated GST shall apply to inter-state transactions and import as well as export transactions (deemed to be inter-state transactions) relating to supply of goods and / or services.

Origin and commencement of IGST Act

The Act is called the Integrated Goods and Services Tax Act, 2017 (in short IGST), an Act enacted to levy, collect and administer IGST in India.

This Act shall be applicable to the whole of India, i.e., including the State of Jammu & Kashmir. And shall come into force from a date which will be notified by the Central Government by way of a notification.

Salient features of IGST Act 2017

  • Continuance of uninterrupted ITC chain on inter-State transactions.
  • No requirement to pay tax upfront or substantial blockage of funds for the inter-State seller or buyer.
  • No claim of refund of taxes paid in exporting State, as ITC is used up while paying the tax.
  • Self-monitoring model.
  • The activity of streamlining is limited to inter-State dealers and Central and State Governments

should be able to streamline their processes expeditiously.

  • As Dealers making inter-state supplies will be e registered and correspondence with them will be by email, the compliance level will improve substantially.
  • The IGST Model can take ‘Business to Business’ as well as ‘Business to Consumer’ transactions into an account.

Taxonomy of IGST law

The IGST Act comprises of the following 11 Chapters, 33 Sections and 8 Definitions.

IGST Example

Mr. X, a trader registered in Bangalore, sold goods to Mr. Y, a registered trader in Chennai, for Rs. 10 Lakhs and further Mr. Y sold these goods to Mr. Z, a registered retailer from Jaipur, for Rs. 11 Lakhs.

For First transaction between Mr. X and Mr. Y

·       Mr. X will collect IGST at the CGST + SGST rate on Rs. 10 Lakhs.

·       As we all know that CGST SGST and IGST full form expands to Central GST/ State GST and Integrated GST respectively.

·       Mr. Y will get the credit which he can use for further payment of his GST.

For Second transaction between Mr. Y and Mr. Z

·       Mr. Y will collect IGST at the CGST  +  SGST rate on Rs. 11 Lakhs.

·       Mr. Z will get the credit which he can use for further payment of his GST.

Who pockets the taxes here? [Note: Key point to remember : GST is a consumption-based tax.]

·       Tamil Nadu will get the SGST on Rs. 10 Lakhs from Karnataka on the first transaction between Mr. X and Mr. Y.

·       Tamil Nadu will also be collecting tax on the second transaction between Mr. Y and Mr. Z on the amount of Rs. 11 Lakhs which it will further transfer to the Central Government (CGST) and to the Rajasthan government (SGST).

What conclusion could be derived from this IGST example? Inter-State trade will definitely benefit as the interstate transactions do not have to be taxed twice.

This is in contrast to erstwhile tax laws where if you purchased goods from Chennai, you pay tax there and then again in your state in which you ultimately sell it. This helps the traders to increase their Inter-State trade by lowering the tax burden.

Know Other Types of GST

CGST, SGST, UTGST, Difference between CGST, SGST & IGST


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